Background to the study.
Over the years, one of the main issues developing countries have
faced is sustainable economic growth. To keep up with the tremendous
demand for government need to raise revenue to carry out its duties. The
single most important way government raise funds to finance its
operations is through taxes (Osundina and Olanrewayu 2013: 76). Tax is a
major player ofevery nation of the world and tax system put in place an
opportunity for government to collect additional revenue needed in
discharging it's obligations.
The economic effects of taxation include micro effects on the
distribution of income and efficiency of resource use, as well as, macro
effect on the level of capacity output, prices, employment, and growth.
Hence, taxation tends to affect productivity and resources allocation
in the economy.
It is important to note that asides the fact that taxation is an
important source of generating revenue for the government, it is also an
avenue for the redistribution of wealth and re-adjustment of the
economy (Ojo 2008) cited in (Abata 2014: 110). The tax system is one of
the most powerful levies available to any government to stimulate and
guide its economic and social development (Abata 2014: 110).
Furthermore, according to Roche (2015: 1), corporate taxation is of
great concern in investors' decisions and hence wetin employment and
Taxation has different impacts depending on the form it assumes.
Corporate and Shareholder taxes reduce the capital funds available to
make investments and build a general and more productive structure
Statement of the problem
Taxation as a source of financing economic growth in Nigeria has been
a difficult issue primarily because of its administration and various
girls of resistance such as avoidance, evasion, etc. These activities
are considered as sabotaging the economy and are presented as part of
the reasons for the present state of underdevelopment in Nigeria.
It is an important part of fiscal policy which can be used
effectively by government and developing economies. Taxation also
affects condition consumption, distribution, price, stability, savings,
investment, and economic growth. It is important to note that despite
the policies and measures that are being taken by the government in
promoting economic growth in Nigeria, the efforts have not really
produced results. Also, many researchers have worked on the economic
growth of Nigeria and have taken a critical look at variables that
affect economic growth, however not much empirical studies have been
made to examine how taxation had impacted economic growth . This study
intends to fill the gap in the literature by carrying out an empirical
study of the trend of taxation in Nigeria right from 1980 to 2016 and
examine its impact on the economic growth.
The main objective of this study is to investigate the macroeconomic
impact of taxation on economic growth of Nigeria. The specific
1.) To determine the nature of the relationship between taxation and economic growth in Nigeria.
2.) To examine the impact of taxation on the Nigerian economic growth.
1.) What is the relationship between taxation and economic growth in Nigeria
2.) To what extent has taxation contributed to the growth of Gross Domestic Product in Nigeria?
3.) In what ways can Nigeria change her tax system in order to boost revenue generation through this source?
1.) Taxation has contributed significantly on economic growth in Nigeria.
2.) Taxation has contributed significantly on economic growth in Nigeria.
Scope of the study.
This study covers the Gross Domestic Product of Nigeria from
1980-2016 to obtain the extent to which taxation has contributed to the
GDP and consequently economic growth of Nigeria.
Significance of the study
This study will help to provide a clear insight that would help
government to know how to run a smooth and effective tax system and
policies. Given the fact that the subject of taxation is an essential
part of a country's investment and growth plan, this study will help to
contribute to the efforts of government in promoting economic growth by
showing how taxation has impacted economic growth from 1980-2016. It
also coordinator contributes to the empirical literature by focusing on
the effect of each tax indicators on economic growth.
Limitation of the study
The broad scope of this study makes it require enoqugh time to carry out empirical studies
Definition of terms
1.) Tax: this refers to a compulsory levy on the citizens of the
country in order to generate revenue for the government. It could be
direct or indirect tax.
2.) Economic growth: this refers to the positive change in the level of goods and services produced by a country.
3.) Gross Domestic Product: this refers to the output of goods and
services of a country. It is used to measure the economic growth of the
1.) Abata, M. (2014), "The impact of Tax Revenue on Nigerian Economy
(Case of Federal Board of Inland Revenue)", Journal of Policy and
Development Studies, 9(1): 109-121.
2.) Ekpung, E and Wilfred, O. (2014), "The Impact of Taxation on
Investment and Economic Development in Nigeria", Academic Journal of
inter-disciplinary Studies, 3(4): 209-218.
3.) Roche, G. (2015), "Taxation and it's negative impact on business investment activities", IEM's economic note.
4.) Osundina C and Olanrewaju G. (2013), "Welfare Effects of Taxation
on the Nigerian Economy", International Journal of Humanities and
Social Science Invention, 2(8): 76-82.