Economic development in Nigeria: Does value added tax matter?

Abstract

Value-Added Tax (VAT) as part of indirect taxes serves as a source of revenue for the government at the federal level in the country. Despite this, the government still complains of insufficient funds to embark on infrastructural projects and social amenities that are the foundations of development in Nigeria. Therefore, this study examined the effect of VAT on economic development in Nigeria from 1994-2019. The study employed Auto-Regressive Distributed Lag (ARDL) technique. The unit root test confirmed that at level, consumer price index and inflation rate were stationary; while the human development index and value added tax were stationary at first level difference. The bound test result established a long-run relationship between the variables. ARDL result showed that value added tax was positive and significantly related to the human development index at short-run and long-run; the consumer price index was non-significant at 5% in the short-run but was in the long-run with a positive sign; while the inflation rate was significant at both short-run and long-run. The study concluded that value-added tax and a moderate increase in general price level stimulate economic development in Nigeria, while instability in the consumer price index worsens it. Therefore, this study recommended that the government should ensure that revenues realized through direct tax are channeled to the provision of adequate infrastructural facilities that can promote economic development.