Vat Revenue and State Investment Spending in Nigeria, 1994-2010.

Abstract

This study attempted to determine the long-run equilibrium relationship and direction of causality between VAT revenue and state investment spending in Nigeria between 1994 and 2010. This were with a view to examining the link between VAT revenue and state investment spending in Nigeria.. Times series data on variables (state investment expenditure and VAT revenue) covering the period (1994-2010) were used. The data were sourced from CBN Statistical Bulletin 2010 edition and CBN Annual Reports (various years). The unit root property of each of the variables was investigated using ADF and PP unit root tests.  The study also employed Johansen cointegration technique to find out if group of I(1) variables converge to a long-run equilibrium, Vector Error Correction Mechanism (VECM) was used to find out the causal link between the two variables.  The result showed that both variables were I(1) process. Also, the two I(1) variables were found to converge to a long-run equilibrium.  Also, the VECM results indicate that long-run bidirectional causality existed between VAT revenue and state investment spending. The result also revealed short-run causal evidence between VAT revenue and state investment spending. This implies that VAT revenue influenced state investment spending and state investment spending also influenced VAT revenue. The study concluded that both short-run and long-run bidirectional causality existed between VAT revenue and state investment spending in Nigeria during the period under investigation.

Keywords: causality, cointegration, converge, bidirectional, short-run relation, long-run relation