THE EFFECT OF TAX REVENUE ON MACROECONOMIC PERFORMANCE IN NIGERIA
Abstract
This study examined the effect of tax revenue on selected macroeconomic indicators in Nigeria. In specific term, the study investigated the effect of petroleum profit tax, company income tax, custom and excise duty, and value added tax on the macroeconomic variables of economic growth (measured using real gross domestic product), inflation and unemployment rate. The study employed annual data from 1985 to 2021, sourcing it from the Central Bank of Nigeria (CBN) Statistical Bulletin, National Bureau of Statistics (NBS) Annual Abstract and Federal Internal Revenue Service (FIRS) database. The study employed unit root, cointegration and autoregressive distributed lag (ARDL) method in examining the relations between tax revenue and the three macroeconomic indicators. The confirmed cointegrating relationship between tax revenue variables and economic growth, and tax revenue variables and unemployment using the bounds test, but not between tax revenue variables and inflation. In the long run, both petroleum profit tax and value added tax had positive and significant effect on economic growth. Also, the study found no evidence of significant relationship between the tax variables and unemployment in the long run. Company income tax and value added tax were significant contributors to soaring inflation level in the short run. Concluding, the study showed that tax revenue plays minimal role in accelerating economic growth and reducing unemployment level in Nigeria. Based on this, the study recommends expanding the tax base of Nigerian by formalizing the informal sector through policy reforms.
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