DETERMINANTS OF TAX REVENUE IN NIGERIA

Chidebelu C. Orji, John U. Ihendinihu & Michael C. Ekwe
Department of Accounting, College of Management Sciences,
Michael Okpara University of Agriculture, Umudike,
Abia State, Nigeria.
1 orjichidebelu@yahoo.com
2 ihendinihu.john@gmail.com
3 ekwemike@yahoo.com

Abstract
This paper contributes to the existing empirical literature on determinants of tax revenue in Nigeria by
using time series data ranging from 1970-2017. Vector Error Correction Model was adopted to establish both the long run and short run relationships among the variables. The result reveals that in the long run Agricultural value added share, industrial value added share, Service valued added, Exchange rates and Trade openness positively and significantly affect tax revenue as percentage of GDP. However, FDI and Population growth exert a negative and insignificant influence. Whereas, in the short run only trade openness is statistically significant in determining tax revenue percentage of GDP. Industrial value added and exchange rate have negative effect, whereas service value added share of GDP, population growth have positive and insignificant effect. Moreover, the coefficients of the lagged error correction term (ECM (-1)) is negative as expected, which imply the existence of economic or government forces that restore the long run equilibrium from short run shocks. Finally, the study recommends that government should enact policies that promote industrial production, and improve the security situation in the country that will give potential investors confidence that their investments will not be at risk.

Keywords: Tax revenue, Determinants of tax, GDP, trade openness, value added share, Vector Error
Correction

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