Tax Revenue, Tax Reform and Government Expenditure: The Case of Nigerian Economy (1994 – 2017)

Main Article Content

Chinedu Jonathan Ndubuisi
Onyekachi Louis Ezeokwelume
Ruth Onyinyechi Maduka

Abstract

The objective of this study is to empirically investigate the effect of tax revenue and years tax reforms on government expenditure in Nigerian. Tax revenue were explained using custom and excise duties, company income tax, value-added tax and tax reforms explained by the years in which reforms took place measured by dummy variables as proxies. In conducting this research, an annual time series data from central bank statistical bulletins and Federal Inland revenue Service of Nigeria spanning from 1994-2017 were employed. The data were tested for stationarity using the Augmented Dicker-Fuller Unit Root Test and found stationary at first difference. The Johansen co-integration test was also conducted and showed that the variables are co-integrated at the 5% level, which implied that there is a long-run relationship between the variables in the model. The presence of co-integration spurred the use of vector error correction model and VEC granger causality to determine the effects and decision for the study objective. Findings revealed that Customs and Excise Duties has positive (3.96) and significant (-8.38) impact on government expenditure at 5% level of significance (t=8.38>1.96), Company Income Tax has negative (-1.25) and significant (2.98) impact on government expenditure at 5% level of significance (t=2.98>1.96), Value added tax has positive (8.54) and significant (3.90) impact on government expenditure at 5% level of significance (t=3.90>1.96) and Tax reforms periods has negative(-3.52E+12) and significant (8.39) impact on government expenditure at 5% level of significance (t=8.39>1.96). The study thus concluded that tax revenue and tax reforms significantly affect the Nigerian economy with the direction of causation running from government revenue to government expenditure, supporting the revenue-spend or tax-spend hypothesis.  It was recommended while seeking to increase its revenue base via tax should also increase their expenditure profile to create a balance with the tax revenue and every other tax reform should be geared towards this balance.

Keywords:
Custom and excise duties, company income tax, value added tax, tax reforms and government expenditures.

Article Details

How to Cite
Ndubuisi, C. J., Ezeokwelume, O. L., & Maduka, R. O. (2020). Tax Revenue, Tax Reform and Government Expenditure: The Case of Nigerian Economy (1994 – 2017). Asian Journal of Economics, Business and Accounting, 18(3), 1-12. https://doi.org/10.9734/ajeba/2020/v18i330283
Section
Original Research Article

References

Ebieri J, Ekwueme DC. Assessment of the Impact of Tax Reforms on Economic Growth in Nigeria. Journal of Accounting and Financial Management. 2016;2(2):15-28.

Ihendinihu JU, Jones E, Ibanichuka EA. Assessment of the long-run equilibrium relationship between tax revenue and economic growth in Nigeria: 1986 to 2012. The Standard International Journals Transactions on Industrial, Financial & Business Management. 2014;2(2):39-47

Chartered institute of taxation of Nigeria. Nigeria tax guide and statutes, Nigeria: CITN publications; 2002.

World Bank. Lessons of Tax Reform, Washington DC; 2000.

Sayode, Kayola. As cited in Adedoji & Oboh (2012). An Empirical Analysis of Tax Leakages and Economic Growth in Nigeria. European Journal of Economics, Finance and Administrative Science. 2006;48:42-52.

Odusola A. Tax Policy Reforms in Nigeria. Research Paper No. 2006/03 United Nations University-World Institute for Development Economics Research; 2006.

Charles UJ, Ekwe MC, Azubike JUB. Federally Collected Tax Revenue and Economic Growth of Nigeria: A Time Series Analysis. Accounting & Taxation Review. 2018;2(1):24-38.

Gale WG, Samwick AA. Effects of Income Tax Changes on Economic Growth. Economic Studies at Brookings. 2014;1-16.

Azubuike JUB. Challenges of tax authorities, tax payers in the management of tax reform processes. The Nigerian Accountant. 2009;42(2):36-42.

Alli BD. Managing the tax reform process in Nigeria. Niger. Account. 2009;42(1):45-51.

Oriakhi DE, Rolle RA. The Impact of Tax Reform on Federal Revenue Generation in Nigeria. ESUT Journal of Accounting. 2014;5(2).

Obasikene AC. Government Expenditure in Nigeria and its Impact on the Nigerian Economy, 1986-2014. Journal on Banking Financial Services & Insurance Research. 2017;7(11):1-12.

Anyanwu JC. Monetary Economics: Theory, Policy and Institutions. Onitsha: Hybrid Publishers Ltd; 1993.

Attamah N. Basic Principles of Economics. Enugu: Marydan Publishers; 1999.

Nwosu DC, Okafor HO. Government Revenue and Expenditure in Nigeria: A Disaggregated Analysis. Asian Economic and Financial Review. 2014;4(7):877-892.

Moalusi D. Causal link between government spending and revenue: A case study of Botswana. Fordham Economics Discussion Paper Series. 2007-07.

Emelogu CO, Uche MO. An examination of the relationship between government revenue and government expenditure in Nigeria: Co-integration and causality approach. Central Bank of Nigeria Economic and Financial Review. 2010;48(2):35-57.

Saeed KP, Somaye S. Relationship between government spending and revenue: Evidence from oil exporting countries. International Journal of Economics and Management Engineering (IJEME). 2012;2(2):33-35.

Ogujiuba K, Abraham TW. Testing the relationship between government revenue and expenditure: Evidence from Nigeria. International Journal of Economics and Finance. 2012;4(11):172-182.

Zinaz A, Samina K. Government expenditure and tax revenue, causality and co-integration. The Experience of Pakistan. 2002;1972-2007.

Al-Qudair KHA. The relationship between government expenditure and revenues in the Kingdom of Saudi Arabia: Testing for co-integration and causality. JKAU: Econ. & Adm. 2005;19(1):31-43.

Hye QMA ,Jalil MA. Revenue and expenditure nexus: A case study of Romania. Romanian Journal of Fiscal Policy. 2010;1(1):22-28.

Ali R, Shah M. The causal relationship between government expenditure and revenue in Pakistan. Interdisciplinary Journal of Contemporary Research in Business. 2012;3(12):323-329.

Narayan PK. The Government Revenue and Government Expenditure Nexus: Empirical Evidence from Nine Asian Countries. Journal of Asian Economies. 2005;15(6):1203-1216.

Narayan PK, Narayan S. Government Revenue and Government Expenditure Nexus: Evidence from Developing Countries. Applied Economics. 2006;38(3):285-291.

Fasano U, Wang Q. Testing the Relationship between Government Spending and Revenue: Evidence from GCC Countries, IMF Working Paper WP/02/201; 2002.

Wolde-Rufael Y. The Revenue-Expenditure Nexus: The Experience of 13 African Countries. African Development Review. 2008;20(2):273-283.