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Impact Assessment of Taxes and Government Capital Expenditures

on Nigeria's Economic Growth.

Atayi Abraham Vincent

, Vonke Juliana Dickson

, Edache Godwin Omoche

, Nafisatu Isa Abdullahi

Odeh O. Sunday

Department of Economics, Plateau State University Bokkos, Nigeria.

Department of Economics, University of Jos, Plateau State, Nigeria

Faculty of Education, University of Pretoria. South Africa

Department of Political Science, Plateau State University Bokkos, Nigeria.

Department of Accounting and Finance, Ahmadu Bello University, Zaria Nigeria

DOI:

https://doi.org/10.51583/IJLTEMAS.2026.15020000067

Received: 25 February 2025; Accepted: 02 March 2026; Published: 16 March 2026

ABSTRACT

This study looked at how taxes and government capital expenditures affected Nigeria's economic growth.

Secondary time series data from 1992 to 2021 make up the data set used in this investigation. The Granger

Causality Test Result and Autoregressive Distributed Lag Model (ARDL) were employed in the study to describe

the relationship's direction. According to the findings, the percentage of changes in the dependent variable that

can be accounted for by the independent variables is indicated by the coefficient of determination (R2).

Economic growth may be described by changes in the explanatory variables as shown by the model, according

to the R2 of 0.614087, or 61%. The dummy variable accounts for 49% of the explanation.

The model is significant at 5%, according to the F-statistic, which suggest the model's overall importance. The

F-statistics and its probability (4.177050 and 0.004027, respectively) support this. Therefore, the study comes to

the conclusion that taxes and government capital expenditures significantly contribute to Nigeria's economic

growth. As a deterrence to others, this study suggests, among other things, that the government impose a death

penalty on people who divert funds from the petroleum profit tax and misappropriate government capital

expenditures.

Keywords: Taxation, Government, Capital Expenditure, Econometrics and Economic Development.

INTRODUCTION

Globally, taxes are a significant source of government revenue, and governments utilize the money they receive

to carry out their traditional duties, which include supplying goods, upholding law and order, defending against

outside aggression, and regulating trade and business to maintain social and economic stability (Edame and Okoi,

2014). A country's internal resources can be mobilized and an atmosphere that supports economic growth can be

created through the implementation of a tax system (Ayuba, 2014). As a result, taxes are crucial in helping a

nation satisfy its demands and encourage self-reliance. Because it impacts all economies, regardless of national

variations, the requirement to pay taxes has been a phenomena of global relevance (Oboh and Isa, 2012). The

government sets the amount of taxes that citizens must pay and the things that are subject to taxes. According to

Ngerebo and Masa (2012), the primary factor influencing the budget size is the cost of the projects or programs

the government plans to carry out. The basis, rates, citizen categories, and tax payment periods are also

determined by the government based on its assessment of the citizens' level of living and the intended economic

trajectory. Thus, taxes have an impact on government spending, corporate productivity and activity levels,

individual consumption patterns, saving and investment inclinations, and economic growth (Al-Yousif, 2017).

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Every nation aims for growth and survival in order to keep a competitive position in the global market during

this time of intense international rivalry. Economic growth is essential for long-term development since without

it, people's living standards won't rise. In addition to drawing attention from around the world, rapid economic

growth also paves the way for future development (Udoffia and Godson, 2016). Economic growth is defined as

a steady expansion in the economy's capacity for production over time, which raises national output (Adebosin

et al. 2021). A nation's political, economic, and social advancement is determined by the amount of money it

makes from the supply of infrastructure. On the other side, one method of generating revenue to pay for necessary

infrastructure is through a well-designed tax system (Edame and Okoi, 2014). The goal of creating a thriving

economy might not be achievable without a workable way to raise money to fund the national spending that will

accomplish the intended purpose. According to Nzontta (2007), taxes constitute a significant source of funding

for the federal government (Adebosin et al. 2021). To perform its conventional duties, such as supplying public

goods, protecting against outside threats, and upholding law and order, the government utilizes tax money.

Due to the high rate of tax evasion and avoidance by taxpayers, Nigeria experiences low government revenue,

which in turn lowers government spending. This lowers household and business income savings and

expenditures, which in turn results in low levels of economic activity and growth (Fagbemi, 2015). Money is

necessary for the government to fulfill its social responsibilities to the people, which include, but are not limited

to, providing social services and infrastructure. Murkur and Olugu (2013) assert that in order to meet the demands

of society, enormous sums of money are required, which neither a society nor an individual can provide on their

own. One way that money is obtained is through taxes. In our system, taxes don't play this crucial role. According

to Oboh and Isa (2012), the system is unbalanced and dominated by oil revenue, which has contributed at least

70% of total revenue over the last 20 years. This suggests that traditional tax revenue has never played a

significant role in the nation's fiscal policy management.

Government spending is still a crucial tool used in the development process. At practically every level of growth

and development, it is essential to the operation of any economy. Today, the majority of both developed and

developing nations employ public spending to alter the composition of national income, improve income

distribution, and direct resource allocation in targeted sectors (Assi et al., 2019; Vtyurina, 2020). For example,

the change in government spending patterns in emerging nations is expected to promote economic growth and

increase job possibilities in addition to ensuring stability (World Bank, 2015). Without a question, government

spending is a crucial tool for a government to manage a country's economy.

Capital and recurring expenditures are the two main categories into which Nigeria's federal government divides

its spending. Government spending on administration, including salaries, wages, loan interest, and upkeep,

makes up the recurring expenditure. On the other hand, capital expenditures are used for projects like water,

telecommunication, highways, airports, health, education, and electricity generation. Investments with multiplier

effects on the economy in terms of public benefits are known as capital expenditures. Most of the time,

government action has stabilized the economy's employment and income (Collins and Mary, 2017).

The Nigerian government spends a lot of money that is mishandled, stolen, lost, or even squandered, which leads

to the implementation of government projects that are unsuccessful and incomplete. The wealth gap between the

rich and the poor keeps widening even though economic growth is anticipated (Udoffia and Godson, 2016). The

problem of tax avoidance and evasion made this worse because some Nigerians do not understand the

consequences of paying taxes and do not know how the money would be utilized to boost the country's economy

(Abata, 2014).

LITERATURE REVIEW

Overview of Taxation System in Nigeria

In essence, the Nigerian tax system is set up as a means of raising money. Based on British tax regulations from

1948, this is a holdover from the pre-independence regime and has remained mostly unchanged since

improvement. The Income Tax Management Act (ITMA) of 1961 was driven by the necessity of taxing personal

incomes across the nation. Pay as you earn (PAYE) is the basis for personal income tax (PIT) for salaried jobs in

Nigeria. The 1961 ITIMA Act has undergone multiple changes. For example, PIT was raised from N600, or 10%

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of earned income, to N2000 + 12.5% of income over N6000 in 1985. In 1989, savings accounts of N50000 or

more were subject to a 15% withholding tax, whereas taxes onThese laws were designed to achieve effective

protection for local industries, increased utilization of raw materials, and increased government revenue, among

other goals. The fees of directors were set at 15 percent (Mamud, 2008). As a result, emphasis has been placed

on encouraging manufacturers to export and lowering personal and corporate taxes. Many actions were made in

accordance with this shift in the focus of policy. These included, among other things, evaluating the capital

allowances for custom exemption and rebats, extending the duty drawback and manufacturing-in-blood schemes,

and eliminating excise duty. Increasing tax assistance for low-income workers, monetizing termination benefits,

and implementing VAT

Value Added Tax (VAT)

VAT, which is ultimately paid for by the final customer but is collected at every stage of the production and

distribution chain, is described by Ajakaiye (2013) as a "multi stage tax imposed on the value added to goods

and services as they proceed through various stages of production and distribution and to services as they are

rendered." Ajakaiye (2013) states that VAT is a tax paid at every stage of value creation. Every time producers

supply goods and services, a multi-stage tax is applied. He noted that VAT is charged to the value that items have

earned or contributed before they are sold. He went on to clarify that one of the indirect taxes that the government

collects in this case is VAT. The value-added tax rate in Nigeria is now 7.5% (Abiahu and Amahalu, 2017).

Income Tax for Companies (CIT)

Company income tax, also referred to as corporation tax, is imposed on all companies operating in Nigeria.

Today, the tax rate is only thirty percent of the corporations' declared profits, down from forty-five percent in the

1980s. This tax must be paid at a rate of thirty percent for each year that a corporation's profits are assessed

(Emmanuel and Charles, 2015). The 1979 Company Income Tax Act (CITA), as amended, governs it. In other

words, the current enabling law that controls the collection of taxes on profits made by businesses operating in

Nigeria is the Company Income Tax Act, 1990. This is a percentage of a company's profits that are produced,

imported into, or obtained in Nigeria. The Federal Tax of Inland Revenue is the recipient of this tax..Since the

firm becomes a separate legal entity upon incorporation, the tax is justified as a tax on the company, which is a

juristic person distinct from its stockholders. The Companies Income Tax Act of 2004 governs the tax. The

Companies Income Tax Act (CITA) of 1979 established CIT, which has its origins in the Income Tax

Management Act of 1961. It is among the taxes that the Federal Inland Revenue Service (FIRS) administers and

collects. The tax makes a substantial contribution to the Service's revenue profile. Because the government insists

on tax certificates being submitted for any official obligation from corporate administration, it is comparatively

simple to collect.

Petroleum Profit Tax (PPT)

This tax is levied against the earnings of Nigerian oil production firms. In other words, any resident or occupier

company, or any person in control of a non-resident corporation that is producing or exploring petroleum, is

subject to the petroleum profit tax. This also includes any recipient, liquidator, or agent of a recipient or liquidator

of any business operating petroleum operations in Nigeria. The Petroleum Profit Tax Act, PPTA (1959), as

amended, governs it. Petroleum profit tax, according to Eyisi, Oleka, and Bassey (2015), is specifically targeted

due to the importance of oil in Nigeria's governmental revenue performance. Given that it accounts for 70% of

all foreign exchange gains and 95% of government revenue, it is the most significant tax in Nigeria. In place of

CIT, PPT is a tax on the revenue of businesses engaged in upstream petroleum operations.

Investments Made by the Government

The costs expended by the government to sustain itself and provide public goods, services, and projects that are

required to promote or encourage economic growth and improve the well-being of members of society are

referred to as government expenditures by Brown and Jackson (2016). The amount spent for the benefit of a

nation's citizens serves as the basis for estimates of government spending. A large portion of government

spending goes on infrastructure, education, and Social Security. Spending by the government might be

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continuous or one-time. Capital expenditure is defined as spending that will yield returns in the future because

there may be some lag time between the time an investment is made and when it affects the economy. "Capital

expenditure" refers to the total amount of money spent on the purchase of fixed (productive) assets, such as

buildings, roads, machinery, and equipment, whose useful life is longer than the fiscal or accounting year, as

well as the cost of improving or updating fixed assets that are already in place. Additionally, research

expenditures fall under this category of government spending. Capital expenditures are generally considered

investments that will yield future returns, according to Brown et al. (2016).

Government spending on farms, businesses, and industries in the form of grants and subsidies is very effective

since it lowers production costs, which in turn causes prices to drop. However, spending on education and health

has a direct impact on the well-being of society. Expenditure on education and health is considered as an

investment in human capital enhances skill formation and raises the ability to produce which has the consequence

of rising disposable income and in turn increases consumption and investment (Uwaezuoke, Nweke and Ogar,

2018)

The Impact of Taxes on Economic Growth and Government Capital Expenditure in Nigeria

Al-Fawwaz (2016) cites Musgrave and Musgrave (2004) as saying that taxes are a significant part of Nigerian

society. From pre-colonial to post-colonial times, it has been a driving factor behind the nation's economic

growth. It is by far the most important source of funding for the contemporary government, which is why there

has been a current push for tax increases. The government can use tax revenue to fund its spending programs,

which include general administration, social and infrastructure services, and other large-scale projects. For this

reason, tax revenue is regarded as the government's most important source of funding.

I wholeheartedly concur with Rabul's (2000) assertion in Abata (2014). The vast majority of state and federal

governments firmly concur with his assertion that government spending should be financed by income. This

demonstrates why the government sets spending caps in its yearly budget list to match the anticipated revenue,

of which taxes are a major source. Essentially, the difference between what taxes meant to the government and

what capital and gains meant to people and businesses

Taxation Problems in Nigeria

Naiyeju (2010) highlights the following challenges of tax administration and collection in Nigeria today in a

symposium organized by the Chartered Institute of Taxation of Nigeria as part of the country's 50th anniversary

celebration:

(i) Administrative Difficulty: The majority of tax authorities, particularly state and local governments, lack

the institutional competence necessary for efficient administration. The taxes that fall within their

jurisdiction (capacity in terms of computer and IT infrastructure, staffing, skills, salary compensation, and

other funds, etc.

(ii) Difficulties with Compliance: For PIT, employers' failure to register their workers and pay these taxes to

the appropriate tax authorities. Many VATs collected are not remitted, and many people in both urban and

rural areas avoid paying the tax. Many SMEs, the unorganized sector, and even large corporations engage

in evasive techniques for CIT.

(iii) Inequality: Today, only employees pay the majority of PIT. Few people are not fairly taxed, including

politicians, the wealthy, professionals, and the privileged.

(iv) The Problem of Several Taxes: It continues to be a significant issue with our administration and collection

of taxes.

(v) Ineffective Taxation by Government Levels: The political economy of revenue distribution discourages

aggressive taxation, particularly by states and local government units. Their portion of the oil earnings is

what they rely on most.

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(vi) The Problem of Bad government: Since there is no outward sign of excellent government, taxpayers are

not incentivized to pay higher taxes.

(vii) Corruption Challenge: Corruption is a common problem in tax administration and collection. The

possibility of corruption reduces tax revenue and system trust.

(viii) Human Capacity Building and Training Challenges: States and Local Governments lack the qualified

personnel needed to effectively manage the applicable taxes.

Theoretical

The Friedman Tax Revenue Theory and Wagner's Law of Ever-Increasing State Activities serve as the foundation

for this investigation.

Wagner’s Law of Ever-Increasing State Activities

In his seminal work, German economist Adolph Wagner developed a law of rising state action. He claimed that

as economic development rises, there is a long-term tendency for the scope of government to expand. According

to Wagner's law, the pressure of social progress is what led to an increase in public spending. To put it succinctly,

the legislation stipulates that the proportion of all significant government spending rises for developing

economies. Two factors served as the foundation for Wagner's generalization: (a) The demand for government

services has an income elasticity higher than unity; (a) The public sector continuously encroaches on the private

sector as economic development progresses. Wagner maintained that greater economic progress leads to more

hardships and criminal activity, necessitating ever-higher state spending to combat such crime.

Friedman Tax Revenue Theory

Known by some economists as the "tax-spend debate" or the "revenue-expenditure nexus," the relationship

between government spending and receipts has been a source of increasing concern since 1980. Friedman (1978)

contends that government revenue and economic growth are causally positively correlated. Friedman argues that

raising taxes only results in increased spending and economic expansion. According to Friedman (1978), raising

taxes will enhance the government's resources in an effort to lower budget deficits, and the only outcome will

be improved economic growth.

Empirical Review

Efuntade, Efuntade, and Akinola (2022) investigated the connection between Nigeria's economic growth, taxes,

and capital expenditure. As suggested by Wagner, the main objective is to determine the degree of the relationship

between capital expenditure and economic growth as well as the relationship between taxes and economic

growth. The specific objective is to evaluate the long-term correlations between petroleum profit tax (PPT),

company income tax (CIT), value added tax (VAT), capital spending, and economic growth using time series

data from 1989 to 2019. The analysis was based on Wagner's (1883) Law of Ever-Increasing State Activities and

Friedman's (1978) Revenue Theory.

The Central Bank of Nigeria Statistical Bulletin and the Federal Inland Revenue Services provided secondary

data. The ARDL Cointegration test, regression, descriptive analysis, and error correction model were all used in

the study. The findings validated the connection between real gross domestic product, PPT, CIT, VAT, and capital

expenditure.

The results demonstrated that capital expenditure and PPT had a long-term, positive, and considerable impact

on economic growth, but CIT and VAT had a negative relationship with it. While Friedman discovered a causal

association between taxes and economic growth, Wagner was also supported by evidence showing a causal

relationship between capital expenditure and economic growth. It is recommended that the government

enhance fiscal synchronization, which comprises making decisions on taxes and capital spending simultaneously,

in order to foster economic growth.

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Ofoegbu, Akwu, and Olive (2016) conducted an empirical analysis of the effect of tax income on Nigeria's

economic development using annual time series data from 2005 to 2014.

They found that tax revenue and economic development were significantly correlated. The results also

demonstrated that assessing the correlation with GDP rather than the impact of tax revenue on economic

development provided a clearer picture of the relationship between tax revenue and economic development in

Nigeria.

Chandana, Adamu, and Musa (2021) use time series data from 1970 to 2019 to examine the effect of Nigerian

government spending, broken down into capital and recurring expenditures, on economic growth. The

Autoregressive Distributed Lag (ARDL) model is used in this paper.

The study takes into consideration structural breaks in the co-integration analysis and the unit root test to

guarantee the robustness of the findings. The main conclusions of the study are that, whereas recurring

expenditures have no discernible effect on economic growth over the medium or long term, capital expenditures

have a positive and considerable impact on both.

The report suggests that the government raise its capital expenditure share, particularly for worthwhile initiatives

that directly impact the wellbeing of its citizens. The government should also carefully reallocate resources to

constructive endeavors that would advance the nation's human development in order to improve the spending

patterns of recurring expenditure.

Bingxin, Shenggen, and Anuja (2016) examined the relationship between taxes and economic growth in China

using a dynamic GMM model and a panel data set for 44 developing countries from 1990 to 2014. They found

that different types of government spending have varying effects on economic growth. Human capital investment

contributes to economic growth in Africa, whereas capital formation, agriculture, and education have a

significant development-promoting impact in Asia. In Latin America, no government spending item has a major

impact on economic growth.

Szarouska (2016) conducted a study using data from 2000 to 2013 to examine the connection between economic

growth in the Czech Republic and federally generated revenue through tax administration. The study examined

the relationship between economic growth (as defined by GDP) and 10 government spending components:

general public services, defense, public order and safety, economic affairs, environmental protection, housing

and commerce, health, recreation and culture, education, and social protection.

Cointegration and error correction modeling (ECM) were used to evaluate the data. The results show that GDP

and the expenditure functions for economic affairs, public safety and order, and government spending in general

have a cointegration connection. However, the trials demonstrate that GDP and the other governmental

components included in the model do not co-integrate. He maintained that while it is impossible to prove that

government spending on defense, environmental protection, housing and commerce, health, recreation and

culture, education, and social protection has increased, government spending on general public services, public

order and safety, and economic affairs has increased over time, increasing GDP.

Jiranyakul and Brahmasrene (2017) used empirical data from OECD nations to determine whether tax structure

has an impact on economic growth. This study uses panel data for 17 OECD nations from 1980 to 2010 to

evaluate the long-term impact of changes in the tax revenue neutrality structure on the amount of income per

capita. Unlike previous research, they were unable to provide a firm foundation for the influence of various tax

arrangements on growth. Additionally, they lack concrete proof to support their claims regarding the desire for

corporate personal tax or the consumption tax on income tax.

This study examined a number of parameters, including GDP, population growth, human capital, physical capital,

personal and corporate income taxes, consumption taxes, and property taxes. The study's findings suggest that

higher steady-state levels of per capita income may be associated with shifts in total tax revenue toward property

taxes. Additionally, this finding remains valid even after the authors used a new sample, a different regression,

and a different description of the temporal effects.

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The impact of tax revenues on capital expenditures in the Nigerian economy is assessed by Craig, Adetola, and

Maminu (2020) Between 1989 and 2018, the Federal Inland Revenue Service, the Central Bank of Nigeria

statistical bulletin, and the National Bureau of Statistics provided secondary sources of data for the study.

Utilizing a longitudinal technique, the study collected secondary data from the Federal Inland Revenue Service's

audited financial records from 1989 to 2018, the CBN statistics bulletin, and the National Bureau of Statistics.

To explain the relationship between the variables of capital expenditure (dependent variable) and tax revenues

(oil and non-oil) (independent variable), the data was analyzed using the linear regression approach.

Adebosin, Toriola, Salami, Akingbade, and Ajayi (2021) investigate the connection between Nigeria's economic

growth, government spending, and taxes. Using a descriptive research design and the national income accounting

framework, the study employed a linear regression model that shows how taxes, government spending,

investment, and exports affect economic growth. The Central Bank of Nigeria (CBN) Statistical Bulletin

provided the time series data for the study, and the Fully Modified Ordinary Least Squares (FM-LS) estimation

approach was employed for the analysis.

It was shown that while government spending hinders Nigeria's economic growth, exports and investment greatly

accelerate it. In the meanwhile, it is estimated that taxes have little impact on Nigeria's economic growth. Wide-

ranging, efficient internal control measures are required as a policy tool to create fiscal restraint in government

spending. Additionally, any ineffective activities and investments in government apparatus and institutions must

be discouraged.

METHODOLOGY

The data used in this study came from the Central Bank of Nigeria (CBN) Statistic Bulletin, the National Bureau

of Statistics (NBS), the Federal Inland Revenue Services (FIRS), the World Bank Development Indicator

Database, and other relevant government organizations. Aggregate time series data were utilized due to their

stable nature and qualities, and this study would use basic descriptive statistics as one of its statistical techniques

for data analysis.

Model Specification

The model is specified as follows:

RGDP= f (GCE + PPT + CIT + VAT)

𝑅𝐺𝐷𝑃

𝑡

= β

+ Inβ

𝐺𝐶𝐸

𝑡

+ 𝐼𝑛β

𝑃𝑃𝑇𝑡 + Inβ

𝐶𝐼𝑇

𝑡

+ Inβ

𝑉𝐴𝑇

𝑡

+ ɛ

𝑡

Where;

RGDP_ = Real Gross Domestic Product GCE = Government Capital Expenditure

PPT = Petroleum Profit Tax

CIT = Company Income Tax

CAT = Value Added Tax

= the constant β

- β

= the coefficients of the explanatory variables ɛ = Stochastic Error Term

RESULTS AND DISCUSSION

Unit root test

Before beginning any analysis, this study used the unit root test to see if the data was steady. According to

economic theory, before using a standard econometric technique, variables must be stationary, meaning they

must have a long-term or equilibrium connection with one another (Gujarati 2004). It is advised that the data be

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validated for analysis using the unit root test. At the 5% level of significance, the Augmented Dickey-Fuller test

was used to determine the unit root.

It is assumed that the variables should be 1(1) or 1(0) in order to determine the critical values. To ensure that

none of the variables are integrated at order two or higher, the unit root test must still be used. The order of

integration of model variables is checked for the unit root test using the Augmented Dickey-Fuller (ADF) with

the trend and intercept option and the automatic Akaike Information Criterion (AIC) lag selection criteria. The

following table displays the outcome:

Table 1: Summary of the Augmented Dickey-Fuller Test

Variables ADF Statistics 5% Critical value Probability Order of integration Remark

LOGCIT -7.293204 -2.963972 0.0000 1(1) Stationary

GDPg -3.625979 -2.960411 0.0109 1(0) Stationary

LOGVAT -3.672273 -2.976263 0.0107 1(0) Stationary

LOGPPT -5.004579 -2.967767 0.0004 1(1) Stationary

LOGGCE -6.507363 -2.963972 0.0000 1(1) Stationary

Sources: Authors computation using Eview 10

The outcomes of the unit root test are displayed in the table above. According to the decision rule, there is no

unit root in the data and it is stationary if the Augmented Dickey Fuller statistics is more than the crucial value

at 5%. While CIT, PPT, and GCE were stationary at the first difference, the results indicate that RGDP and Value

Added Tax are stationary at level, indicating that the data is stationary. according to the methodology of Pesaran

& Pesaran (1997). Only two of the variables in the research model are stationary at 1(0), while the other three

are stationary at first difference, according to the ADF unit root test for this study1(1). Only two variables are

stationary when evaluated at levels, according to the results in table 1 above; the other variables are not. Going

forward, each of the resulting time series will undergo the unit root test after the corresponding variables have

been differentiated. This process is justified by the argument made by Box and Jenkins (1976) that non-stationary

time series can achieve stationarity by differencing. This type of data justifies the application of the

Autoregressive Distributed Lag Model.

Granger causality test

Regression analysis examines how one variable affects another, but it does not prove causation. According to

Gujarati (2004), the presence of a relationship between variables does not establish causation or the direction of

influence. Finding out whether there is a causal relationship between Company Income Tax (CIT), Value Added

Tax (VAT), Petroleum Profit Tax (PPT), Government Capital Expenditure (GCE), and

RGDP growth rate (GDPg) is the main goal of this research project's Granger causality test. The F- statistics is

used to reject or accept the null hypothesis of no causation between the variables when F-statistics is greater than

2 and less than 2 respectively. Or the probability value, the null hypothesis is rejected if p- value is less than 5%

level of significance. Consider the table below to check for direction of influence between the variables in Nigeria

for the period under study (i.e. from 1990 to 2021).

Table 2: Granger Causality Test Result

Pairwise Granger Causality Tests

Date: 05/01/26 Time: 08:26

Sample: 1990 2021

Lags: 2

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Null Hypothesis:

Obs

F-Statistic

Prob.

LOGCIT does not Granger Cause GDPG

0.41067

0.6676

GDPG does not Granger Cause LOGCIT

2.51691

0.1010

LOGGCE does not Granger Cause GDPG

0.57737

0.5687

GDPG does not Granger Cause LOGGCE

2.51522

0.1011

LOGPPT does not Granger Cause GDPG

0.65569

0.5278

GDPG does not Granger Cause LOGPPT

0.22648

0.7990

LOGVAT does not Granger Cause GDPG

3.55399

0.0468

GDPG does not Granger Cause LOGVAT

0.60271

0.5565

LOGGCE does not Granger Cause LOGCIT

2.20601

0.1311

LOGCIT does not Granger Cause LOGGCE

0.70976

0.5014

LOGPPT does not Granger Cause LOGCIT

3.00520

0.0677

LOGCIT does not Granger Cause LOGPPT

0.01051

0.9895

LOGVAT does not Granger Cause LOGCIT

3.71265

0.0416

LOGCIT does not Granger Cause LOGVAT

1.20180

0.3205

LOGPPT does not Granger Cause LOGGCE

0.12935

0.8793

LOGGCE does not Granger Cause LOGPPT

2.08438

0.1455

LOGVAT does not Granger Cause LOGGCE

0.66268

0.5259

LOGGCE does not Granger Cause LOGVAT

4.20395

0.0291

LOGVAT does not Granger Cause LOGPPT

0.86310

0.4363

LOGPPT does not Granger Cause LOGVAT

2.72327

0.0888

Source: Author’s computation using Eview 10

Depending on the permitted lag length, the results, which are all tested on the same lag, cycled between

unidirectional and no causality. The results are shown in Table 2 above. According to the findings, there is a

causal relationship between VAT and GDP, GCE and VAT, and VAT and CIT.

The findings indicate that while RGDP does not granger cause VAT, VAT is granger causing RGDP. Additionally,

while VAT is not Granger driving GCE, government capital expenditure is, leading to value added tax. Similarly,

CIT does not granger cause VAT, but VAT granger causes CIT. The relationship between them is unidirectional.

Since their probability in Nigeria is more than 5%, the remaining variables are not granger causing one another.

Autoregressive Distributed Lag Model (ARDL)

The ARDL approach was adopted because its test statistics generally perform much better in small sample than

the test statistics computed using the asymptotic formula that explicitly takes account of the fact that the

regressors are 1(1). Its permits the combination of the different order of integration (1(1)) and 1(0)) among the

variables in the model. The result of the ARDL for the models is represented below:

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TABLE 3: showing the ARDL result

Dependent Variable: RGDP

Method: ARDL

Date: 07/01/26 Time: 08:46

Sample (adjusted): 1992 2021

Included observations: 30 after adjustments

Maximum dependent lags: 2 (Automatic selection)

Model selection method: Akaike info criterion (AIC)

Dynamic regressors (2 lags, automatic): LOGCIT LOGGCE LOGPPT

LOGVAT

Fixed regressors: C

Number of models evalulated: 162

Selected Model: ARDL(1, 2, 0, 1, 0)

Variable

Coefficient

Std. Error

t-Statistic

Prob.*

LOGCIT

1.047784

1.325992

0.790189

0.4382

LOGGCE

-2.193453

1.520619

-1.442474

0.1639

LOGPPT

-0.509612

1.130825

-0.450655

0.6569

LOGVAT

0.963466

0.961114

1.002448

0.3275

9.058357

6.089323

1.487580

0.1517

R-squared

0.614087

Mean dependent var

4.693000

Adjusted R-squared

0.467072

S.D. dependent var

3.206609

S.E. of regression

2.340885

Akaike info criter

ion

4.782260

Sum squared resid

115.0746

Schwarz criterion

5.202619

Log likelihood

-62.73390

Hannan-Quinn cr

iter.

4.916737

F-statistic

4.177050

Durbin-Watson st

1.889983

Prob(F-statistic)

0.004027

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*Note: p-values and any subsequent tests do not account for model

selection.

The RGDP would expand positively by 9058357, indicating an increase in economic growth and development,

if all explanatory factors were maintained constant, according to the coefficient of the constant intercept β0,

which is 9.058357. Our apriori expectation is that the independent variables (CIT, PPT, VAT, and GCE) and the

Real Gross Domestic Product (RGDP) in Nigeria should be directly positively correlated. With the exception of

CIT and VAT, the coefficients do not meet the apriori expectation. The government capital expenditure

coefficient as a proportion of GDPg, however, does not match the apriori expectation. The coefficient (β

2.193453, P=0.1639) shows a negative and an insignificant relationship between GCE and economic growth in

Nigeria. Its shows that a unit change in GCE will lead to 219% decrease in economic growth and development

in Nigeria.

As a result, the Petroleum Profit Tax coefficient indicates that it does not meet the apriori anticipation of a

positive association. The coefficient of (β2=-0.509612, P=0.6569) supports this. At 5%, the outcome is negative

and negligible. This indicates that the economy's GDP will drop by 51% for every unit change in the petroleum

profit tax. PPT and economic progress have a negative association.

Additionally, the Company Income Tax coefficient matched the apriori prediction of a positive correlation. This

is demonstrated by the coefficient (β3=1.047784, P=0.4382), which shows that economic growth and

development will increase by 105% for every unit increase in company income tax.

Finally, the Value Added Tax coefficient matched the apriori prediction of a positive correlation. The coefficient

of (β4=0.963466, P=0.3275) supports this. At 5%, the outcome is both good and negligible. According to the

results, Nigeria's economic growth will improve by 96% for every unit change in VAT.

The percentage of changes in the dependent variable that can be accounted for by the independent variables was

displayed by the coefficient of determination (R2). Economic growth may be described by changes in the

explanatory variables as shown by the model, according to the R2 of 0.614087, or 61%. The dummy variable

accounts for 49% of the explanation. According to the F-statistic, which gauges the model's overall significance,

it is significant at 5%. This is indicated by the F-statistics and its probability (4.177050 and 0.004027)

respectively. With a Durbin Watson statistic of roughly 2 indicating that there is no serial correlation that is, the

value of the random term in any given period is uncorrelated with its preceding values, indicating the absence of

autocorrelation we conclude that there is a significant relationship between taxes and government capital

expenditure on economic growth in Nigeria.

DISCUSSION OF FINDINGS

Nigeria ranks among the world's top producers of crude oil. The petroleum industry is essential to the country's

government's existence. Excessive corruption and poor administration have plagued Nigeria's oil industry, which

has hindered successive leadership's ability to use the money earned from oil revenue wisely for the country's

growth. To achieve sustained economic growth and development, Nigeria must diversify its economy.

The coefficient of company income tax as a percentage of RGDP is positive and negligible, according to the

regression's findings. It demonstrates that there was a favorable correlation between CIT and Nigeria's economic

expansion. It indicates that Nigeria's economic growth and development will improve by 105% for every unit

change in CIT. This might be the outcome of businesses making more money and being more inclined to pay

taxes as a mandatory duty to the government. This contradicts the findings of Efuntade, Efuntade, and Akinola

(2022), who discovered a negative correlation between CIT and Nigeria's economic growth.

The study further reveals that there exists a beneficial association between Value Added Tax and economic

growth and development in Nigeria. It demonstrates that a 96% increase in RGDP will result from a unit change

in VAT. Finally, the Government Capital Expenditure coefficient does not match the apriori anticipation of a

positive correlation. At 5%, the outcome is negative and negligible. According to the results, Nigeria's economic

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growth will decline by 219% with every unit change in GCE. This might be because resources intended primarily

for infrastructure development are being diverted to a select few, which is causing the economy to expand

negatively.

CONCLUSION

The connection between taxes, government capital expenditures, and economic growth in Nigeria has been

investigated in this study. According to the paper, Nigeria's economic growth is significantly influenced by

taxation and government capital expenditures. The study concluded that in order to have a substantial and

positive impact on the Nigerian economy, taxes should be kept under control as a source of government funding.

RECOMMENDATIONS

The following suggestions are offered in light of the findings of this study:

To discourage others, the government should hang individuals responsible for stealing money from the petroleum

earnings tax and government capital projects. To increase revenue, the government should diversify the economy.

To lessen and eventually eradicate its detrimental effects on the economy, the government should keep an eye

on capital project spending. In order to help businesses create more and raise value added tax and company

income tax, the government should invest more in infrastructure development. This would have a huge impact

on the economy.

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