Tax incentives and industrial productivity: evidence from Nigeria

Abstract

This study investigates the relationship between tax incentives and industrial productivity in a protected industry. Based on available empirical literature, the nexus between tax incentives and direct investment, on one hand, and tax incentives and production volumes, has been largely established. However, the nexus between tax and within-sector productivity in a pioneer industry may vary across countries. Using data from Nigeria, the study examines the relative importance of tax amongst other industrial incentives in driving productivity within the cement industry. The findings show that while tax incentives may have improved production growth, it is not a significant driver of short-run productivity growth. Conversely, other non-tax incentives such as financing subsidies appear to have more impact on productivity. These findings provide new insight into the nexus between industrial policy incentives and productivity, and suggest that tax incentives may not be sufficient to drive the country's industrial agenda.