The Impact of Tax Policy on Economic Growth in Nigeria

Abstract

In contemporary economic literatures, there exist, considerable disagreement about how tax policies influence economic growth and development. While the traditional schools of thought advocated the theory of low income tax rates as major factor influencing economic development, the modern schools propagated the theory of higher income tax rates that is capable of developing nations. Using time series data between 1990 and 2011, this study attempts to justify these lines of thinking by making Nigeria as a case study with the main objective of identifying the impact of tax policy on economic growth in the country. Applying the Granger – causality co integrations framework, this study finds statistical evidence that efficient tax reforms are necessary conditions for enhanced sustainable economic growth. On the basis of the findings, the study recommends among other issues that improvement in tax regimes, removal of distortions in taxation, discouragement of tax holidays to MNCs and diversification of revenue base as necessary catalysts for sustained economic growth and development.