An Empirical Investigation of the Effect of Taxation on Macroeconomic Performance in Nigeria

Abstract

The main objective of this paper is to critically investigate the impact of taxation on the macroeconomic performance of the Nigerian economy ranging from 2002 to 2011. Ordinary least squares regression method was applied in analyzing obtained data. Result obtained showed that government earnings from taxation has positive significant effect on real gross domestic product in Nigeria;  government revenue from taxation has negative significant influence on unemployment rate in Nigeria; and that petroleum profit tax has negative significant effect on real interest rate in Nigeria. The implication of the above study shows that revenue generation from taxation enhances economic growth and that changes in taxation, automatically will affect individuals real standard of living (GDP), employment rate and interest rate. In view of above findings, the Researcher recommends that: the current draft national policy should be passed into law by the National Assembly so as to make it a working document; the government should consider taxpayers and other key stakeholders’ interest in fiscal policy formulation and implementation in order to achieve improved tax compliance rate in the country and that government needs to improve the revenue allocation system so as to boast the taxation drive by the different tiers of government.

Keywords: Unemployment rate; taxation; Gross Domestic Product (GDP); Petroleum Profit Tax (PPT); Interest Rate