An Evaluation of the Effectiveness of Tax Incentives on Economic Growth: Evidence from Nigeria

Abstract

Assessing the Relationship between Tax Incentives and Economic Growth in Nigeria is aimed at determining the effect of tax incentives on economic growth in Nigeria. The study adopted Ex Post Facto Research Design and time-series data was used. Relevant secondary data for this study were collected from the Central Bank of Nigeria (CBN) Statistical Bulletin and the National Bureau of Statistics (NBS) and the Federal Inland Revenue Service (FIRS). The study employed ordinary least square estimation and used regression analysis to test the relationship between Tax Incentives and Economic Growth in Nigeria. The study shows that tax incentive policy is positively and significantly related to gross domestic product. The findings showed that there is a degree of relationship between corporate income tax and gross domestic product; and that there is degree of co-variability between investment allowance and gross domestic product in Nigeria. The implication of this finding is that since tax incentives have positive and significant impact on gross domestic product, policy reform in other factors that affect economic growth is needed also to complement these incentives so that a better result can be achieved. The study recommends that tax incentive policy should be designed bearing in mind the economy’s macroeconomic objectives like rapid economic growth and development.

Keywords: Tax incentives, Economic growth, Corporate Income Tax, Investment Allowance

DOI: 10.7176/RJFA/11-14-13

Publication date:July 31^st 2020