Econometric Analysis of the Impact of Value Added Tax on Economic Growth in Nigeria

Abstract

The importance of value added tax (VAT) as a source of government revenue in both developed and developing countries has been subjected to serious examination in recent decades. The objective of this paper is to empirically analyse the relationship between VAT and economic growth in Nigeria. Using the Engle and Granger cointegration technique on annual data sample covering 1994 to 2012, this paper shows that VAT has positive effect on economic growth proxied by real GDP. The results also show absence of both long-run and short-run relationship between VAT and GDP. The government should therefore put in place measures to enhance productivity so as to increase the contribution of VAT to economic growth in Nigeria.

Keywords: Value added tax, economic growth, gross domestic product, Nigeria