Tax Revenue and Economic Development in Nigeria: A Macroeconometric Approach

Abstract

The study examines the impact of tax revenue on the economic growth of Nigeria, judging from its
impact on infrastructural development from 1980 to 2007. To achieve this objective, relevant
secondary data were collected from the Central Bank of Nigeria(CBN) Statistical Bulletin, Federal
Inland Revenue Service (FIRS) and previous works done by scholars. The data collected were
analyzed using the three stage least square estimation technique. The results show that tax revenue
stimulates economic growth through infrastructural development. That is, it highlights the channels
through which tax revenue impacts on economic growth in Nigeria. The study also reveals that tax
revenue has no independent effect on growth through infrastructural development and foreign direct
investment, but just allowing the infrastructural development and foreign direct investment to
positively respond to increase in output. However, tax revenues can only materialize its full potential
on the economy if government can come up with fiscal laws and legislations and strengthen the
existing ones in line with macro economic objectives, which will check-mate tax offenders in order
to minimize corruption, evasion and tax avoidance. These will bring about improvement on the tax
administration and accountability and transparency of government officials in the management of
tax revenue. Above all, these will increase the tax revenue base with resultant increase in growth.