TAX REVENUE AND ECONOMIC GROWTH IN NIGERIA 1970- 2022: VECTOR ERROR CORRECTION MODEL

Abstract

Background: Tax revenue is a major source of funding for governments globally. The impact of tax revenue on economic growth has been a subject of debate amongst scholars largely because of a lack of consensus on findings from prior studies and effects on the lives of citizens. Aim: The aim of the study was to determine the effect of direct taxes on the long-run economic growth of Nigeria for the period 1970 to 2022 using CBN and World Bank data publications for Nigeria. Methods: Direct taxes were proxied as company tax, petroleum profit tax, education tax, and personal income tax while economic growth variables considered were real GDP, unemployment, and the VAR method of vector error correction model was used. Sample: The population of the study covered tax and economic data for the period of Nigeria's independence 1960-2022 and in all sixty-three years. However using a purposive sampling technique to determine sample size, the researcher focused on data for the post-war period which covered 1970-2022, and eliminated the period of war. Results: Company income tax and education tax have significant positive impacts on real GDP growth in Nigeria, while the effects of personal income and petroleum profit taxes are insignificant. The effects of taxes on economic growth are more long-term rather than short-term. Conclusions: The author concludes that company and education taxes improve economic growth in Nigeria with these impacts more glaring in the long run rather than in the short run while petroleum and personal taxes play minor roles. Implications: The tax system for companies should be designed and implemented in a way to minimize distortions and inefficiencies taking into account any constraints that may arise,  thus enhancing revenue collections. Also, policymakers should re-appraise current tax policies and formulate new policies on petroleum and personal income taxes that will improve GDP growth.