CORPORATE TAXES AND NIGERIA ECONOMIC GROWTH: A GRANGER CAUSAL ANALYSIS

Abstract

Government tax reforms are aimed at improving revenue collection and reducing tax evasion, yet Nigeria’s economic growth has remained inconsistent, with periods of recession and sluggish GDP expansion. The high dependence on oil-related taxes, coupled with weak tax administration and compliance, has led to revenue leakages and inefficiencies in tax collection. This study investigates the relationship between corporate taxes and Nigeria’s economic growth using Granger Causal Analysis and complementary econometric techniques. Focusing on key tax instruments—Company Income Tax (CIT), Petroleum Profit Tax (PPT), and Value-Added Tax (VAT)—the analysis spans the period from 2011 to 2023. Employing Ordinary Least Squares (OLS) regression, the study finds that CIT exerts a statistically significant positive effect on real GDP growth, while PPT also shows a positive relationship, albeit with marginal significance. In contrast, VAT exhibits a negative but statistically non-significant association with economic growth. Additional macroeconomic variables such as interest rates and inflation negatively impact growth, and the exchange rate is found to be influenced by GDP dynamics. Pairwise Granger causality tests further reveal that while corporate tax variables do not directly predict future GDP growth, broader macroeconomic factors—specifically interest rates and exchange rate adjustments—play a significant causal role. The findings underscore the complex interplay between fiscal policies and economic performance in Nigeria, suggesting that effective tax administration and balanced macro-fiscal strategies are essential to harness corporate tax revenues for sustainable growth. Policy recommendations include strengthening tax compliance mechanisms, reviewing the VAT regime to mitigate its potentially adverse effects, and implementing stabilization measures for interest and exchange rates.