The Dynamics of Tax System and Macroeconomic Performance in Nigeria

Joseph A. Omojolaibi; David A. Obieke

Joseph A. Omojolaibi Department of Economics, University of Lagos and Center for Economic Policy Analysis and Research (CEPAR), University of Lagos, Akoka, Nigeria
David A. Obieke Center for Economic Policy Analysis and Research (CEPAR), University of Lagos, Akoka, Nigeria

Keywords: Tax Policy, Macroeconomic Performance, Macroeconomic Indicators

Abstract

This study examined the effects of the dynamics of tax system on macroeconomic performance in Nigeria covering the period between 1980 and 2019. The study employed autoregressive distributive lag (ARDL) model as the estimation technique which enabled the determination of the short run (SL) and long run (LR) relationship between tax revenue and macroeconomic performance. Five models were specified; in model 1, the short-run result shows that the Customs and Excise Duties (CED) has negative and significant impact on Gross Domestic Product (GDP), indicating that a percent change in CED will reduce (GDP) by 2.4%. In Model II, in the SR and LR, CED has positive and insignificant impact on inflation, suggesting that a percent change in CED will increase rate of inflation by 16.2% in the short run and 6.88% in the long run. In Model III, a percent change in Petroleum Profit Tax (PPT) will reduce public debt by 0.10% and 0.79% in the short run and long run respectively. In Model IV, CED, PPT and Value Added Tax (VAT) exert a negative but significant influence on unemployment. This means that a percent change in the aforementioned control variables will increase the unemployment rate by 0.00%, 29.3% and 0.19% respectively. In Model V, both in the short run and in the long run, the computed dynamics of tax system has a positive and significant influence on macroeconomic performance in Nigeria, that is, a percent change tax system in Nigeria will increase macroeconomic performance by 0.10% and 3.05%. Hence, taxation should be relied upon to address inflation, economic growth, unemployment, public debt challenges and other macroeconomic fundamentals. It should be at the core of a fiscal policy mix for mobilizing domestic resources on a sustainable manner for socioeconomic development of the country.

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