Tax Structures and Economic Growth in Nigeria: Disaggregated Empirical Evidence

Abstract

This paper seeks to investigate the empiricism behind the New National Tax Policy in Nigeria by employing co-integration and error correction as methods of empirical estimation with an empirical strategy of disaggregation. In line with the objective of the paper, empirical results indicate that while the policy of direct taxation is significantly and positively correlated with economic growth, indirect taxation proved insignificant with its negative impact on economic growth in Nigeria.  The paper indeed ascertained that the tax-based revenue profile in Nigeria is skewed towards direct taxes. By implication, the global transition from direct taxation to indirect taxation lack empirical justification in developing countries such as Nigeria. Thus, we recommend that rather than expand the indirect tax structures, the government should expand the structures of direct taxes in Nigeria.  A major contribution of the paper to knowledge is the fact that on the basis of the hypotheses tested, the empirical paper closes the knowledge gap induced by inconclusive evidence on the growth effects of taxation composition which most often has resulted in situations where empirical findings of researches done in developed economies are generalized to developing countries.

Key words: Tax structures, direct taxation, indirect taxation, economic growth, Nigeria,