Re-investigating Tax Effects on Economic Growth in Nigeria: A Disaggregated Analysis

Matthew A. Dada; Sunday M. A. Posu; Adedayo O. Adedeji; Esther Ndarake-Osibamowo; Alexander T. Oguntuase; Bamidele P. Abalaba

Matthew A. Dada Department of Economics, Federal University of Agriculture Abeokuta, Nigeria
Sunday M. A. Posu Department of Economics, Federal University of Agriculture Abeokuta, Nigeria
Adedayo O. Adedeji Department of Economics, Federal University of Agriculture Abeokuta, Nigeria
Esther Ndarake-Osibamowo Department of Economics, Federal University of Agriculture Abeokuta, Nigeria
Alexander T. Oguntuase Department of Accounting, Crawford University, Faith City Igbesa, Nigeria
Bamidele P. Abalaba Department of Economics, Osun State University, Osogbo, Nigeria

Keywords: Tax variables, Inflation, Unemployment, Population, Economic growth, DOLS-ARDL

Abstract

Taxation stands as a pivotal fiscal tool in economic management, affecting growth either positively or negatively. This study, spanning 1990-2022, delves into disaggregated analysis of tax effects on economic growth, considering variables like domestic investment, trade volume, inflation, unemployment, and population. The study scrutinises five key tax elements: Personal income tax, corporate income tax, petroleum profit tax, education tax, and customs and excise duties. With data sourced from various reputable institutions, the analysis reveals that personal income tax exerts a short-run positive influence on economic growth while petroleum profit tax exerts nil effect, similarly to customs and excise duties, corporate income tax, and education tax in both the short-run and the long-run. The result also shows that domestic investment and trade volume are positively signed while inflation, unemployment, and population are negatively signed but have weak influence on economic growth. Short-run dynamics are captured through error correction terms, suggesting a robust relationship among variables and the potential for adjustment to equilibrium. The study concludes with a call for a comprehensive overhaul of Nigeria's tax policy to foster the desired growth, alongside urgent measures to address inflation, unemployment, and population growth while bolstering trade volume and domestic investment.

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