Indirect Tax and Economic Growth in Nigeria: Endogenous Growth Theory and Neo-Classical Growth Theory
Abstract
Using a modeling approach that incorporate the growth theory and neo-classical theory, and its implied vector error correction model, the aim of this study is to empirically investigate the long run relationship between indirect tax and economic growth for Nigeria, a country which has experienced very large fluctuations in the government fiscal deficits. Time series data on different types of indirect tax and real gross domestic product from 1994-2020 were collected from the Central Bank of Nigeria Statistical bulletin, National Bureau of Statistics, Federal Inland revenue Service and Annual Central Bank of Nigeria reports. Descriptive statistics, ordinary least square regression analysis, unit root test, co-integration test and error correction model with the aid of e-view version 11 were used in analyzing the data. The results indicate that value added tax positive and significantly relate to gross domestic product. In the same vein, customs and excise duties positively relate to gross domestic product. The study therefore concludes that the exist a strong relationship between indirect tax and economic growth in Nigeria and recommends that the mono-product economy of Nigeria should be diversified along the line of taxation since there exist a positive relationship between taxation and economic growth in Nigeria. In addition, the drift from direct to indirect form of taxation as entrenched in the New National policy should be deemphasized as there exists a negative and insignificant relationship between indirect tax and economic growth in Nigeria.
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