Implications of Tax Policy on Inflation in Nigeria (1981 - 2012)

Abstract

This study examined the effect of tax policy on inflation in Nigeria, using aggregate time series data from 1981 to 2012.  The Inflation model was estimated with data from Central Bank of Nigeria Statistical Bulletin. Some of the estimation techniques adopted in the study include, Johansen Co-integration test Technique, Ordinary Least Square Technique and Granger Causality/Block Exogeneity Wald Test. The results of the estimates showed that: Tax policy has long run relationship with inflation in Nigeria; Personal income tax rate has negative impact on inflation in the long run, while company income tax rate and consumption and property tax have significant positive relationship with inflation in the long run. In addition, the results of the granger causality/ block exogeneity wald test for the inflation model showed that all the included variables in the model jointly granger cause inflation in Nigeria. Thus government should factor in tax policy when formulating policies that are meant to control inflation.

Keywords: Tax policy, Inflation, Nigeria.

Implications of Tax Policy on Inflation in Nigeria (1981 - 2012)