Corporate Tax Revenue and Government Spending: Implications for Employment in Nigeria

Abstract

This study examines the relationship between corporate income tax, total government expenditure, and unemployment in Nigeria over the period 1994–2023. Recognizing the pivotal role of fiscal policy in shaping labor market outcomes, the research investigates whether corporate tax revenues and government spending significantly influence unemployment levels in both the short and long run. The study adopts an ex-post facto research design using secondary data sourced from the Nigerian Revenue Service Tax Promax, the National Bureau of Statistics, and the Central Bank of Nigeria. Time-series econometric techniques are employed, including stationarity tests using the Augmented Dickey–Fuller method, Autoregressive Distributed Lag modeling, Bounds cointegration test, and the long-run ARDL/Error Correction Model. Empirical results reveal that corporate income tax exhibits a positive and statistically significant relationship with unemployment, suggesting that higher tax burdens on corporations may constrain business expansion and labor absorption. Conversely, total government expenditure demonstrates a negative and significant relationship with unemployment, indicating that government spending, when targeted effectively, can stimulate employment. The Bounds cointegration test confirms a long-run equilibrium relationship among the variables, while the ARDL estimates capture both short-run and long-run dynamics. These findings underscore the importance of efficient fiscal policy implementation, highlighting that strategic allocation of government expenditure toward employment-intensive sectors is crucial for reducing unemployment. The study recommends the optimization of corporate tax policies, prioritization of labor-absorptive government spending, and continuous monitoring of fiscal impacts on the labor market to enhance employment outcomes in Nigeria.