Effect of Direct Income Tax on Gross Domestic Product: Evidence from the Nigeria Fiscal Policy Framework

Abstract

The purpose of this study is to examine the effect of direct income tax on gross domestic product with the key focus on the Nigerian fiscal policy framework and adopting time series data dating from 2007 to 2016 and collected from Budget Office of the Federation, Federal Inland Service publications, Central Bank of Nigeria statistical bulletin and the National Bureau of Statistics. The data set was analysed using, Pearson Coefficient Correlation, Granger Causality test, Ordinary Least Square method of regression, Johansen Cointegration test and Error Correction Model. In order to establish the stationarity of the variables, the Augmented Dickey-Fuller unit root test was employed. Findings from this study reveal that direct income tax has significant positive effect on gross domestic product at 5% level. We therefore carefully recommend that government should provide a strong fiscal responsible and transparent system where tax reforms should be such that would encourage increase in investment tended towards fighting corruption on account of the significant and profound effect of fiscal policies on economic growth in Nigeria.