Inter-Dependency and Inter-relationship Among Tax Revenue, Infrastructure and Human Capital Development in Nigeria: Small Scale Macroeconometric Model

Abstract

Recently, there has been increased calls for human capital development across the African economics. The role of human capital to economic growth and development cannot be overemphasized. Infrastructural development and efficient tax system are veritable tools for promoting human development. When human development is stunted, infrastructural development and tax revenue also shrink. This paper examined the inter-relationship and interdependency among tax revenue, infrastructure and human development in Nigeria for the period 1980- 2021. This paper adopted the simultaneous equation modeling approach and a system of equations where tax revenue, infrastructure and human development are taken to be exogenous. From the result, temporary 10 percent  increase in value added tax revenue has higher effect on human capital development , real GDP and broad money supply. In contrast, permanent increase in value added tax revenue has higher effect on government spending on social and community services(including health and education) and inflation rate than the temporary 10 percent increase in value added tax revenue. Hence, to increase human capital development in Nigeria, temporary tax revenue shock is sufficient. The government should diversify its revenue base and expend more on health and education in addition to building a strong institutional framework to ensure the efficacy of government spending on both health and education.

Keywords: Infrastructure, human capital,  macroeconometric model, tax revenue, Nigeria

JEL Codes: H54, J24, F41, H24

DOI: 10.7176/RHSS/13-6-04

Publication date:March 31^st 2023