Empirical Analysis of Effect of Tax Revenue on Economic Development of Nigeria

Abstract

The purpose of this study is to examine the effect of tax revenue on the economic development of Nigerian, and to ascertain whether there is any difference in using HDI and GDP in establishing the relationship. The approach adopted in this study was that of using annual time series data for the period 2005 – 2014 to estimate a linear model of tax revenue and human development index using ordinary least square (OLS) regression technique. Findings show a positively and significantly relationship between tax revenue and economic development. The result also reveals that measuring the effect of tax revenue on economic development using HDI gives lower relationship than measuring the relationship with GDP thus suggesting that using gross domestic product (GDP) gives a painted picture of the relationship between tax revenue and economic development in Nigeria. The researcher, therefore, conclude that tax revenue can be an instrument of economic development in Nigeria. Development of any tax policy on tax revenue for economic development should better be based on human development index rather than GDP. This study provides a useful insight for the government, stakeholders and policy makers into the importance of tax revenue for economic development as a result; income derived from tax should be judiciously used to encourage citizens to continue to pay tax.