Taxation and Economic Growth in Nigeria: Evidence from Autoregressive Distributed Lag Analysis

Abstract

This study examines the effect of taxation on economic growth in Nigeria using quarterly data spanning 2011Q1–2024Q4, with emphasis on tax composition rather than aggregate tax revenue. Specifically, the study investigates the growth effects of Petroleum Profit Tax, Company Income Tax, and non-import Value Added Tax, while real gross domestic product is employed as the proxy for economic growth. A quantitative research design is adopted, and the Autoregressive Distributed Lag (ARDL) framework is utilised to analyse short-run dynamics and test for the existence of a long-run relationship. The ARDL bounds test indicates the absence of cointegration, suggesting that taxation and economic growth do not exhibit a stable long-run equilibrium relationship over the study period. Short-run estimates from the selected ARDL(5,0,0,0) model reveal that economic growth is predominantly driven by its own lagged dynamics, reflecting strong persistence. Petroleum Profit Tax and Company Income Tax exert negative but statistically insignificant short-run effects on growth, whereas non-import Value Added Tax exhibits a statistically significant negative effect. These findings indicate that the growth effects of taxation in Nigeria are short-run and structure-dependent, underscoring the importance of improving tax efficiency, enhancing productive revenue utilisation, and promoting fiscal diversification to support sustainable economic growth.