Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.

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Tax Structures and Economic Growth in Nigeria: Disaggregated Empirical Evidence

1

,a-id ./&R.10 /.A. An1iwe2 ,e"art2ent of 3cono2ics( 4an5ing 6 Finance( Facult1 of Social 6 /anage2ent Sciences( 4enson Idahosa .ni-ersit1( 4enin 7it1( Nigeria 2 ,e"art2ent of 3cono2ics6 Statistics( Facult1 of Social Sciences( .ni-ersit1 of 4enin( 4enin 7it1( Nigeria 0832ail9 uda-idson2))):1ahoo.co2( /o;ile9 <2*%$)**$$$%1%=

Abstract
>his "a"er see5s to in-estigate the e2"iricis2 ;ehind the New National Tax Policy in Nigeria ;1 e2"lo1ing cointegration and error correction as 2ethods of e2"irical esti2ation with an e2"irical strateg1 of disaggregation. In line with the o;?ecti-e of the "a"er( e2"irical results indicate that while the "olic1 of direct ta@ation is significantl1 and "ositi-el1 correlated with econo2ic growth( indirect ta@ation "ro-ed insignificant with its negati-e i2"act on econo2ic growth in Nigeria. >he "a"er indeed ascertained that the ta@-;ased re-enue "rofile in Nigeria is s5ewed towards direct ta@es. 41 i2"lication( the glo;al transition fro2 direct ta@ation to indirect ta@ation lac5 e2"irical ?ustification in de-elo"ing countries such as Nigeria. >hus( we reco22end that rather than e@"and the indirect ta@ structures( the go-ern2ent should e@"and the structures of direct ta@es in Nigeria. A 2a?or contri;ution of the "a"er to 5nowledge is the fact that on the ;asis of the h1"otheses tested( the e2"irical "a"er closes the 5nowledge ga" induced ;1 inconclusi-e e-idence on the growth effects of ta@ation co2"osition which 2ost often has resulted in situations where e2"irical findings of researches done in de-elo"ed econo2ies are generaliAed to de-elo"ing countries.

Key words: >a@ structures( direct ta@ation( indirect ta@ation( econo2ic growth( Nigeria( ! "ntroduction
>he "olic1 of ta@ation in Nigeria is directed towards achie-ing so2e s"ecific o;?ecti-es which include a2ongst others re-enue generation and u"holding econo2ic growth. Recentl1( the Nigerian go-ern2ent introduced the National Tax Policy [NTP]. >his is a "olic1 geared towards shifting fro2 direct to indirect ta@ation in Nigeria. >he choice ;etween direct and indirect ta@ has elicited serious de;ate in ter2s of econo2ic ;enefits and li2itations that characteriAed each. >hus( 2ost studies ha-e reached su;stantiall1 different conclusions on the relati-e i2"act of direct and indirect ta@es on econo2ic growth with 2ulti"licit1 of "ro;le2s ranging fro2 inconclusi-e findings( chaotic generaliAation of results and findings in de-elo"ed countries to de-elo"ing countries 8see A-i-Bonah and /argalioth 2))6# and 4urgess and Sten 199*#=. According to A-i-Bonah and /argalioth 2))6#( direct ta@ation accounts for a;out two third of the total ta@ re-enue generated in de-elo"ed countries. 4ut "ro"onents of the con-entional wisdo2 h1"othesis are ad-ocating for the use of indirect ta@ation. >o the2( de-elo"ing countries should focus on indirect ta@ation 84urgess and Sten 199*#=. Indeed( the results of 2ost studies are saddled with inconsistencies. Chile so2e researchers li5e Dee and Eordon 2))+#( Jones et al. 199*#( Di and Sarte 2))%#( Fneller et al (1999#( Cild2a2 2))1#( A-i-1onah and /argolioth 2))6#( re"orted a "ositi-e relationshi" ;etween indirect ta@ and econo2ic growth( others such as 32ran and StigliA 2))+#( Eordon and Di 2))+#( 4aunsgaard and Feen 2))+#( A;iAadelh 1979#( 7helliah 19$9# dis"uted the a;o-e finding and instead re"orted the relati-e i2"ortance of direct ta@ation as the dri-er of econo2ic growth. >he e2"irical studies on the su;?ect 2atter for de-elo"ing countries are relati-el1 few. >he few were carried out in South Africa( >ur5e1 and OECD countries. A situation where results of cross countr1 researches in de-elo"ed econo2ies are generaliAed to de-elo"ing countries often induce 5nowledge ga".

#orresponding Author 6+

Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*

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>his stud1 see5s to close this 5nowledge ga" in Nigeria ;1 e2"iricall1 testing the functional relationshi" ;etween ta@ structures and econo2ic growth using 2acroecono2ic -aria;les as control. >he erroneous generaliAation and inconclusi-e e-idence has 2ade the issue of growth effect of ta@ation es"eciall1 at a countr1 le-el o"en for further research. >his in fact infor2ed the ;asis of this "a"er. >his "a"er so see5s to e@"lore the e2"iricis2 ;ehind the new National Tax Policy in Nigeria. In -iew of the foregoing( the "a"er atte2"ts to "ro-ide answers to the following Guestions( is there a significant "ositi-e relationshi" ;etween indirect ta@ and econo2ic growth in NigeriaH &r is there a significant "ositi-e relationshi" ;etween direct ta@ and econo2ic growth in NigeriaH >hus( we h1"othesiAed that there is no significant "ositi-e relationshi" ;etween indirect ta@ and econo2ic growth in Nigeria and also there is no significant "ositi-e relationshi" ;etween direct ta@ation and econo2ic growth in Nigeria. Following the introduction is a discussion of the ta@ structures in Nigeria. Chat follows ne@t is the literature and thereafter( we ha-e theoretical fra2ewor5( 2ethod of e2"irical esti2ation( anal1sis of results and conclusion.

$! Tax Structures in Nigeria

>he Nigerian >a@ S1ste2 has undergone significant changes in recent ti2es. Iowe-er( the ta@ s1ste2 is ;asicall1 structured in such a wa1 as to contri;ute to econo2ic growth through inco2e generation. &n the ;asis of incidence( ta@es can ;e structured into direct and indirect. >here are different co2"onents of direct ta@ation. >hese include the personal income tax [PIT], petroleum profit tax [PPT], companies income tax [CIT], e!ucational tax [ET]. >he PIT is currentl1 regulated under the !ersonal Inco2e >a@ Act of 2))%. >he PPT is regulated ;1 the !etroleu2 !rofit >a@ Act [PPT"] of 199). PPT is charged on the "rofit of a "etroleu2 co2"an1 in the u"strea2 sector of the industr1. 7o2"anies in Nigeria are ta@ed under the 7o2"anies Inco2e >a@ Act introduced in 1961 with 2odifications in 2))7. >he ad2inistration of the CIT is -ested on the Federal Inland Re-enue Ser-ices. 3ducation ta@ in Nigeria is under the regulation of the 3ducation >a@ Act No. 7 that was "ro2ulgated in 199*. >he ta@ is "a1a;le ;1 all co2"anies at the rate of 2 "ercent of the assessa;le "rofit defined in the 7o2"an1 Inco2e >a@ Act. >herefore( assess2ent of education ta@ and co2"aniesJ inco2e ta@ are done concurrentl1. >he different "ro2inent co2"onents of indirect ta@ation in Nigeria include( #alue "!!e! Tax [#"T] an! Custom an! Excise Duty [CED]. #"T is regulated ;1 the #alue "!!e! Tax "ct [#"T"] of 2))7. >he Nigerian #"T s1ste2 is destination ;ased( which 2eans the ta@ is le-ied on goods and ser-ices consu2ed within the ta@ ?urisdiction. >he i2"lication of this is that #"T i2"osition is designed to sti2ulate e@"ort growth 8,esai and Iines 2))2#=. In Nigeria( the ta@ rate chargea;le is + "ercent on goods and ser-ices "urchased ;ut the ta@ "a1er can clai2 credit for in"ut ta@ when such goods are sold. >he CED is regulated ;1 the 7usto2 and 3@cise /anage2ent Act of 199). >he dut1 is chargea;le on all goods and ser-ices i2"orted into Nigeria. >he ta@ is ad2inistered ;1 the Nigeria 7usto2 Ser-ices and is also referred to as i2"ort duties. 7urrentl1( the duties ranged ;etween 2.+ "ercent to 1)) "ercent de"ending on the "roduct.

%! &iterature 'eview
$.%. Direct Taxation an! Economic &rowt' /1les 2)))# e2"iricall1 ascertained that direct ta@ "olic1 is a sti2ulant to econo2ic growth. 4arr1 and Jules 2))$# found that direct ta@es i2"acted negati-el1 on econo2ic growth in the .S. /argalioth 2))*# re"orted that direct ta@ation is har2ful to growth in endogenous growth 2odels. >he results of /a2atAa5is 2))+# hold that direct ta@es ha-e significant "ositi-e i2"act on econo2ic growth in South Africa. >osun and A;iAadeh 2))+# re"orted that the share of "ersonal inco2e ta@ res"onded "ositi-el1 to econo2ic growth. /c7arten 2))+# found that the ratio of direct ta@ to &DP and the ratio of direct ta@ to total ta@ sti2ulated real &DP growth in !a5istan. >osun and A;iAadeh 2))+# re"orted that cor"orate inco2e ta@es are the 2ost har2ful to growth as well as "ersonal inco2e ta@es. Dee and Eordon 2))+# using cross-countr1 data found that statutor1 cor"orate ta@ rates are significantl1 and negati-el1 correlated with cross-sectional differences in a-erage econo2ic growth rates ha-ing controlled for other deter2inant
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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*

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of econo2ic growth. ,?an5or et al 2))9# found strong negati-e effect of "ersonal inco2e ta@ on out"ut growth. Scarlett 2)11# esta;lished e2"iricall1 that an increase in the share of ta@es fro2 "ersonal ta@a;le inco2e has the greatest har2 on "er ca"ital &DP o-er ti2e and correction to eGuili;riu2 fro2 such an i2"act would ta5e u" to nine 1ears. Arnold et at 2)11# found that "ersonal inco2e ta@es are "rogressi-e with 2arginal ta@ rates that are higher than their a-erage rate with the i2"lication of discouraging sa-ings and la;our su""l1. Ariso1 and .nlu5a"lan 2)1)# tested the effect of direct-indirect ta@ co2"osition on econo2ic growth in >ur5e1. >he e2"irical finding of their stud1 holds that direct ta@es ha-e no significant effect on econo2ic growth. Aa2ir( Ka11u2( Nasir and Iussain 2)11# found significant i2"act of direct ta@ation on the total re-enue of the econo21 of India.

$.(. In!irect Taxation an! Economic &rowt'

>he relationshi" ;etween indirect ta@ation and econo2ic growth has ;een e@a2ined se-erall1 ;1 different researchers. Few( if an1 ha-e e@a2ined this line of research in Nigeria. 7helliah 19$9# o;ser-ed that an increase in indirect ta@ation co2"ared to direct ta@ation reduces econo2ic growth 2ore than direct ta@ation does. >heir research finding su""orts the "osition of Iar;enger 196%#. Aa2ir et al 2)11#Js research findings had it that increasing re-enue fro2 indirect ta@es is 2ore conduci-e for econo2ic growth in the long run in !a5istan. A?a5ai1e 1999# found that #"T has a negati-e effect on econo2ic growth in Nigeria. In a 2ore ;road stud1( Ro2er and Ro2er 2)))# resol-ed that "rogressi-e ta@ation affords "olic1 2a5ers the o""ortunit1 to "ursue counter-c1clical fiscal "olicies which dri-es econo2ic growth. S"ecificall1( the1 are of the -iew that #"T can onl1 increase growth when enforce2ent and i2"le2entation "rocedures are effecti-e. >his "osition was strengthened ;1 /c7arten 2))+#. According to 4ird 2))*#( the 2ost effecti-e ta@ for de-elo"ing countries is one that "roduces the largest a2ount re-enue in the least costl1 and dis"ro"ortionate 2anner. Ie identified ;road ;ased #"T as an ideal ta@ that suits the situation. 32ran and StiglitA 2))+# argued that the recent resolution that fa-ours the gradual reduction and the su;seGuent eli2ination of sales ta@es in fa-our of #"T as an instru2ent of indirect ta@es in de-elo"ing econo2ies is worriso2e. According to hi2( it is ;uilt on a fragile result deri-ed fro2 an inco2"lete 2odel that relegates the "resence of acti-e infor2al sector. $.$. T'e Consensus Fro2 the disaggregated e2"irical re-iew( it was disco-ered that studies on the econo2ic growth effects of direct ta@ation are di-ided along two conflicting "ers"ecti-es with 2a?orit1 inclining towards the negati-e effects of direct ta@ation on econo2ic growth. &n the other hand( there is a consensus that indirect ta@ation is growth enhancing.

(! Theory and )ramewor*

).%. T'eoretical *ramewor+ >he theoretical fra2ewor5 draws fro2 the sensiti-it1 fra2ewor5 of De-ine and Renelt 1992# and Feder2Js two-sector "roduction technolog1 a""roach 8Feder 19$2#=. Ei-en that the Nigerian econo21 is 2ade u" of the "u;lic and the "ri-ate sectors( the con-entional( continuous and twice differential "roduction technologies are "resented as9 & = & - , ( . , #( P = P - p ( . p + & # +%! , Ei-en that & re"resents the go-ern2ent or "u;lic sector( P re"resents the "ri-ate sector( - is the la;our in"ut( . is the ca"ital in"ut( su;scri"ts , and p re"resents the sectoral in"uts. >he total in"uts of the for2al and infor2al sectors can ;e s"ecified as9
2

Feder (1982) formulated separate production function for the export and non export sectors of the economy and assumed equality of marginal productivity between the two sectors

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*

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- = - p + -, ( . = . p + .,

+%!$,

>he aggregate national out"ut (/0 which is the out"ut co2;ination of ;oth the go-ern2ent and "ri-ate sectors is then gi-en thus9 +%!%, / = & + P * - , ( . , L - p( . p( & # >otall1 differentiating the aggregate out"ut with res"ect changes in in"uts and in the share of go-ern2ent s"ending( we ha-e that9 +%!(, / M / = & M & & M / # + P M P P M / # Chere indicates changes in -aria;le( with -ariation in relati-e factor "roducti-it1 of ;oth sectors( the relation can ;e s"ecified as the one ;elow9 &- M P- = &. M P. = 1 + # +%!-, Chere &- = &- M - , is the 2arginal "roduct of la;our in the go-ern2ent sector( P- = P- M - p is the 2arginal "roduct of la;our in the "ri-ate sector( &. = &. M - , is the 2arginal( "roduct of ca"ital in the go-ern2ent sector( P. = P. M - p is the 2arginal "roduct of ca"ital in the "ri-ate sector. >he "ri-ate sector out"ut can ;e descri;ed in ter2s of the indi-idual contri;utions of ca"ital and la;our as the factor in"uts as well as the e@ternal effects of the go-ern2ent. Ience( +%!., / M / = . M . + - M - + & M & + & M &8 & M / #= Ei-en that & M & is the rate of change of total go-ern2ent acti-ities( to deter2ine the actual contri;ution of go-ern2ent sector to out"ut( we re2o-e the e@ternal effects of go-ern2ent( that is( "ri-ate sector "roducti-it1 share in ter2s of go-ern2ent acti-ities. Fro2 eGuation *.+# the go-ern2ent out"ut is9 +%!/, &- M P. = &. M P- = 1M 1 + # >herefore( the share of "roducti-it1 of the "ri-ate sector in ter2s of go-ern2ent out"ut is gi-en as9 = 1M 1 + # [ & M & & M / #] +%!0,

= & M & & M / # {1M 1 + #} [ & M & & M / #] = 1 1M 1 + ##8 & M & & M / #= +%!1, = M 1 + #8 & M & & M / #= Ei-en that & M & re"resents the e@ternalit1 of go-ern2ent acti-ities to the "ri-ate sector( the e@ternal
effect of go-ern2ent on the "ri-ate sector is then deri-ed ;1 su;tracting the share of go-ern2ent in total out"ut fro2 & M & ( that is( +%! 2, & M & 8 & M & & M / #= 3Guation *.1)# indicates the e@ternal effect of go-ern2ent on the "ri-ate sector. 7o2;ining eGuation *.9# and *.1)#( eGuation *.6# can ;e 2odified as9

/ M / = . M . + - M - + & M & 8& M & & M / #= + { M 1 + #} 8& M & & M / #=

/ M / = IN/ + - M - + & M & 8 & M & & M / #= + { M 1 + #} 8 & M & & M / #=
+%! , >a5ing the in-est2ent-out"ut ratio as the share of "ri-ate sector ca"ital contri;ution( eGuation *.11# can ;e re-2odified as the one ;elow9 +%! $,

>a5ing the elasticit1 effect and 2arginal shares and e@"ressing eGuation *.1%# in stochastic for2( we ha-e that9

6$

Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*

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/ M / = 1 IN/ # + 2 - M - # + *8& M & & M & & M / #= + { M 1 + #}8& M & & M / #= = 1 IN/ # + 2 - M - # + * & M & #

*8& M & & M / #= + { M 1 + #}8& M & & M / #= = ) + 1 IN/ # + 2 - M - # + * & M & # +

[8 M 1 + #= * ][ & M & & M / #]

+%! %,

>o concretel1 2easure the growth effect of ta@ation( we further a;stract fro2 Foch et al 2))+# and .lu5a"lan 2)1)# where;1 we assu2e a consistent long-run relationshi" ;etween go-ern2ent e@"enditure and ta@ation. >herefore( go-ern2ent e@"enditure (&0 can ;e "ro@ied with ta@ation (T0 with disaggregated into direct and indirect ta@es co2"onents such that9 & = T = DT1 = NT1 +%! (, +%! -, & M & = 8 DT1 + NT1 # M & = Su;stituting eGuation *.1+# into eGuation *.1*#( we ha-e as follows9

/ M / = ) + 1 IN/ # + 2 - M - # + * 8 DT1 + NT1 # M & = +

[8 M 1 + #= * ][8DT1 + NT1 = M & # 8DT1 + NT1 = M / # ] +%!

>herefore( ta5ing "artial differentials with res"ect to the ta@ structures( we ha-e9

.,

) + 1 IN/ # + 2 - M - # + * NT1 #8 NT1 M NT1 # NT1 M T #= + * DT1 #8 DT1 M DT1 # DT1 M T #= +

8 8

+%! /,

NT1 M NT1 # NT1 M / # + M 1+ #= * DT1 M DT1 # DT1 M / # M 1+ #= *

Re-arranging for the growth rate of &DP, we ha-e the ;ench2ar5ed growth eGuation gi-en ;19 / M / = ) + 1 IN/ # + 2 - M - # + * DT1 #8 DT1 M DT1 # DT1 M T #= + 8 M 1 + #= # DT1 M DT1 # DT1 M / # + +%! 0, *

NT1 # NT1 M NT1 # NT1 M T # +

8 M 1 + #= # *

NT1 M NT1 # NT1 M / # +

).(. 2tatistical Test 3ine &rowt' E4uation >he e2"irical 2odel consists of the test line eGuations in addition to the ro;ust eGuation. >he s"ecifications of the eGuation together with its error correction -ersion are rooted on the theoretical fra2ewor5. 3n &PD# = ) + 13n DT1 # +

2 3n NT1 # + t 3n 5 # + 1t

+%! 1,

3n &PD# = ) + 13n DT1 # +

* t =1

t =1

23n NT1 # + t 3n 5 # + ecm EC6 + 2t

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*

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41 definition( Z is a control -ector of e@"lanator1 -aria;les na2el1( the growth rate of "o"ulation in Nigeria [P&N], inflation rate in Nigeria [IN*] and o"enness of the Nigerian econo21 to the world [OPN]. Ei-en that t re"resents the error co2"onent of the 2odel( * re"resents the i2"act of ta@ation on the "ri-ate sector in the Nigerian econo21. Ience( the significance of * DT1 and * NT1 is an indication that !irect an! in!irect ta@es i2"act econo2ic growth in Nigeria. >he i2"etus for the disaggregation is deri-ed fro2 the fact that the h1"othesis and econo2ic 2oti-ations underl1ing the co2"onents of ta@ation in Nigeria are indeed different due 2ainl1 to heterogeneous 2oti-ations. In effect( the growth i2"act of ta@ation in Nigeria could ;e induced ;1 the different ta@ co2"osition. >his "oint is essential in our 2odeling a""roach ;ecause the ta@ structures of the Nigerian ta@ s1ste2 as a de-elo"ing countr1 is -er1 different fro2 those of the de-elo"ed. If there are 7 distinct ta@ structures in the Nigerian ta@ s1ste2( the "u;lic ;udget constraint i2"lies the following identit1 of re-enue generation9

T
f =1

I f (it

=1

Allowing each ele2ent of ta@a;le inco2e to ha-e an i2"act on growth leads to a generaliAation of the growth 2odel which suffers the 2ulticollinearit1 "ro;le2 a2ongst the ele2ents of the -ector T fI(it where(

TfI(it = 8 DT1 ( NT1 = arising fro2 the identit1 of the ;udget constraint. In effect( it i2"lies that we
s"ecif1 two test line regression eGuations for the direct and indirect ta@ structures. Iowe-er( we further disaggregated direct ta@ation into its co2"onents of e!ucational tax, company income tax, petroleum profit tax an! personal income tax. Si2ilarl1( the indirect ta@ation is disaggregated into co2"onents of #"T an! custom an! excise !uties within the Nigerian fra2ewor5. 3n &PD# = ) + 13n PPD# + +%!$ , 3n CNT # + 3n PDT # +
2 *

% 3n EDT # + t 3n 5 # + *t

3n &PD# = ) + 13n CED# +

* t =1

t =1

2 3n #"T # + t 3n 5 # + %t
>he error correction re"resentation of the statistical test-line eGuations are gi-en as follows9 3n &PD# = ) + 13n PPD# +

+%!$$,

23n CNT # + *3n PDT # +

* t =1

+%!$%,
ecm t 1#

%3n EDT # + t 3n 5 # + EC6

3n &PD# = ) + 13n CED# + 23n #"T # +

+ +t

+%!$(,
ecm
t 1 #

t =1

t 3n 5 # + EC6

+ 6t

Chere PDT is "ersonal inco2e ta@ as a "ercentage of total direct ta@( PPD is "etroleu2 "rofit ta@ as a "ercentage of total direct ta@( CNT is the co2"an1 inco2e ta@ as a "ercentage of total direct ta@( EDT is education ta@ as a "ercentage of total direct ta@( CED is custo2 and e@cise duties as a "ercentage of total indirect ta@( #"T is -alue added ta@ as a "ercentage of total indirect ta@( &PD is annual growth rate in
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real &DP( is in-est2ent-inco2e ratio( a 2easure of "h1sical ca"ital stoc5( DT1 is direct ta@ as a "ercentage of total ta@ re-enue( NT1 is indirect ta@ as a "ercentage of total ta@ re-enue and 1 to 6 are the un5nown "ara2eters to ;e esti2ated. ).$. 8o9ustness &rowt' 8e,ression E4uation >o e@a2ine the ro;ustness of the statistical test line eGuations( we e@"anded the Z -ector of control -aria;les to now include the -aria;les of total ta@ re-enue as a "ercentage of total federal re-enue in Nigeria [T*8], hu2an ca"ital de-elo"2ent in Nigeria as 2easured ;1 literac1 rate in Nigeria [3TN] and in-est2ent-inco2e ratio [IN/]. >hese -aria;les are ca"tured ;1 the M -ector. >hus( the ro;ustness regression 2odel is for2ulated as9

3n &PD# = ) +13n DT1 M T*8# +

23n NT1 M T*8# +

P P = +87 p

3n 7 =1

p1

p1 P P = DT1 # +87 3n p 7 =1 7 (it

NT1 #
7 (it

+%!$-,

t =1 >he error correction -ersion of eGuation *.27# is thus s"ecified

+ 5t 5 # + 6t 3n 6 # +7t
t =1

3n &PD# =) +13n DT1 MT*8# +

P P = +87 p P1

23n NT1 MT*8# +

3n 7 =1

P1 P P = 3n DT1 # +87 p 7 =1 7 (it

NT1 #
7 (it

+%!$.,

+ 5t 3n 5# + 6t 3n 6 # + EC6 +$t
ecm

t=1

t=1

P P P >he ter2s 8 7P p = 3n DT1 # and 8 7 p = 3n NT1 # ca"ture the -aria;les that could sur-i-e 7 =1 7 =1

P 1

P 1

significance under the ;aseline esti2ation for direct and indirect ta@ co2"osition res"ecti-el1.

-! 3aterials and 3ethods

:.%. Empirical 6et'o!olo,y >he esti2ation techniGue for this research is the co-integration and error correction. >he choice of this techniGue is rooted on the need to underta5e the causal ins"ection of 2ost ti2e series data to e@a2ine the data for stationarit1. A ti2e series is said to ;e non stationar1 if the 2ean and the -ariance is ti2e de"endent. 41 intuition( a ti2e series is said to ;e stationar1 if the 2ean and -ariance is constant o-er ti2e. In a situation where non stationar1 data are used for econo2etric anal1sis( the statistical inference will ;e 2isleading ;ecause coefficients are erroneousl1 esti2ated 8Eranger 19$6#=. 3cono2etricall1( it is -ital to test for stationarit1 since intuiti-el1L it is assu2ed that ti2e series data are ;1 their nature non stationar1. In this regard( the "u,mente! Dic+ey;*uller ["D*] an! t'e P'illips;Peron [PP] tests are utiliAed. >he choice of the "D* test is "re2ised on its strength o-er different sa2"ling e@"eri2entations 8Sargan 196%#=. >he "D* test is ;ased on the regression eGuation9

*t = w1 + w2t + s*t 1 + i *t i + t
i =1

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Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*
t 1

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Chere * = * * and * is the -aria;le under unit root test and t is a white noise error ter2. >he
t t

theor1 that underlies the anal1sis in this "a"er is the "rediction that when two or 2ore ti2e series are integrated of the sa2e order( a linear co2;ination of such data will "roduce -aria;les that are cointegrated. 7o-integration thus holds when there is a long-run relationshi" or eGuili;riu2. 7o-integration allow for the "ossi;ilit1 of esti2ating a long run relationshi" ;etween -aria;les which 2a1 not ;e stationar1. >he 7o'ansen s co integration techniGue is ado"ted in this "a"er. .sing the EC6, the short-run d1na2ics esti2ate an1 d1na2ic ad?ust2ents ;etween real &DP growth rate and the ta@ -aria;les in their res"ecti-e order of integration. Chile co-integration relates -aria;les in le-els( the EC6 corrects the de-iation fro2 eGuili;riu2 of the e@"lained -aria;le on the ;asis of the changes in the e@"lanator1 -aria;les. :.(. Data Annual data fro2 197+-2)11 were utiliAed for esti2ation. ,ata on ta@es were sourced fro2 the *e!eral Inlan! 8e<enue 2er<ices, "9u=a. National out"ut growth as 2easured ;1 a-erage annual growth rate of real &DP was o;tained fro2 the Statistical 4ulletin of the Central >an+ of Ni,eria (C>N0. >he literac1 rate for the "eriod co-ered was sourced fro2 the statistics of the *e!eral 6inistry of E!ucation, "9u=a. &"enness is the ratio of the su2 of e@"orts and i2"orts to &DP. >he "o"ulation growth rate was sourced fro2 the National Population Commission. >he 1earl1 inflation rates were collected fro2 the C>N?s statistical 9ulletin.

.! 'esults
@.%. "nalysis of 2tationarity Test 8esults >he results of the "D* an! PP test statistics are as re"orted in >a;le1! 4oth the "D* an! PP test statistics "ro-ide e-idence of non-stationarit1 of all the -aria;les in le-el e@ce"t the in-est2ent-inco2e ratio and growth rate of &DP. In su2 therefore( the unit root tests re-ealed that with the e@e2"tion of in-est2entinco2e ratio and the growth rate of gross do2estic "roduct( no other series could gain stationarit1 at le-el ?udging fro2 the fact that their test statistics at le-el are s2aller than the critical -alues at the 1 "ercent le-el of significance. All other -aria;les in the stud1 howe-er( ;eca2e stationar1 after first differencing. >he "D* results are in accord with those of the !! as regard the order of integration for all the -aria;les in the stud1. Stationarit1 as o;tained dis2isses an1 trace of s"urious regression esti2ates. @.(. "nalysis of Co;inte,ration Test 8esults >a;le 2 re"orts the JohansenJs co-integration results. 3-ident fro2 the li5elihood ratio( the h1"othesis of no co-integration a2ongst the -aria;les in each eGuation is re?ected and at least one co-integrating relationshi" e@ists at the + "ercent and 1 "ercent le-els of significance res"ecti-el1. In effect( the cointegration results indicate a re2ar5a;le e-idence of the e@istence of a long-run relationshi" ;etween econo2ic growth and ta@ation together with a seGuence of other control -aria;les in Nigeria. In effect( the -aria;les do not drift awa1 fro2 each other e@ce"t for te2"orar1 fluctuations. >he statistical inference of co-integrated anal1sis "ortra1s the long-run relationshi"s ;etween integrated -aria;les in the stud1. @.$. Disa,,re,ate! Estimates of t'e Impact of Taxation on Economic &rowt' in Ni,eria >a;le * shows the ro;ust error correction esti2ates of the i2"act of ta@ation on econo2ic growth in Nigeria under three different esti2ations. >he error correction coefficients in the three esti2ations show that 72.6+ "ercent( 79.$6 "ercent and $).6$ "ercent res"ecti-el1 of the total diseGuili;riu2 fro2 the longrun growth of real out"ut is corrected for within one-1ear. >he t-ratios of the one-1ear lagged -alues of the error correction -*.29+#( -9.2*7# and -%.+6$# are all statisticall1 significant and negati-e. >his indeed confir2s a good fit and hence adeGuate ad?ust2ent ;etween the short-run and long-run of the diseGuili;riu2 of &DP growth rate. >he 2easures of statistical fitness of the regression esti2ates na2el1( the coefficient of deter2ination( t-statistic and F-statistic are significant at the + "ercent le-el. >he
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coefficients of 2odel deter2ination ha-ing ;een ad?usted for degrees of freedo2 for the three esti2ations are 6*.+ "ercent( $6.+ "ercent and $2.+ "ercent res"ecti-el1. >hus( ha-ing ad?usted for degrees of freedo2( the esti2ated error correction eGuations ha-e a good( high and hence a relia;le e@"lanator1 "ower. >he F--alues 6%.%*#( %6.))# and 26.+6# are statisticall1 significant. &n the "art of indi-idual significance( the two direct ta@ co2"onents na2el1( the ratio of the "etroleu2 "rofit ta@ to total direct ta@ and the ratio of the co2"an1 inco2e ta@ to total direct ta@ that had earlier e@hi;ited significant correlate with the growth rate of E,! under the ;aseline esti2ation 2aintained their significance still under the ro;ust esti2ation ha-ing e@"anded the set of control -aria;les. >he onl1 indirect ta@ co2"onent na2el1( the ratio of custo2 and e@cise duties to total indirect ta@ in Nigeria that was significant under the ;aseline esti2ation could not sustain such significance in the su;seGuent esti2ation. >his is seen fro2 the t--alues of 1.+26# and 1.2$*# in esti2ations 2 and * res"ecti-el1. >he diagnostic tests results are statisticall1 satisfactor1 in all the esti2ation. @.). Parsimonious 8esults of t'e Impact of Taxation on Economic &rowt' in Ni,eria >a;le % shows the "arsi2onious error correction esti2ates of the i2"act of ta@ation on econo2ic growth in Nigeria. As it were( the insignificant -aria;les wee dro""ed fro2 the "arsi2onious esti2ation. Indeed( we followed the Iendr1Js general to s"ecific a""roach i2"l1ing that so2e of the -aria;les that could not sur-i-e significance ;e1ond the li5elihood of chance were dro""ed fro2 the final esti2ation. 3-identl1( onl1 the direct co2"onents of "etroleu2 "rofit ta@ and co2"an1 inco2e ta@ could sustain statistical significance under the "arsi2onious esti2ation. In other words( these -aria;les 2aintained their significance u" to the final esti2ation. >he insignificance of the total indirect ta@ in the co2"osition of total ta@ re-enue could ;e e@"lained ;1 fiscal irres"onsi;ilit1 on the "art of the go-ern2ent( a2;iguous inter"retation of e@isting laws and inadeGuate co-erage. For e@a2"le( the infor2al sector is neglected in the sche2e of re-enue dri-e through ta@a;le inco2e. >he #"T -aria;le had "re-iousl1 failed the test of significance under the ;aseline regression for the indirect ta@ co2"onents. >he "etroleu2 "rofit ta@ "asses the test of significance ;e1ond the li5elihood of chance. >he ratio of total direct ta@ to total ta@ re-enue indi-iduall1 sustained significance with an enor2ous t-ratio of 11.**+#. >his corro;orates the theor1 that direct ta@ation is growth enhancing in Nigeria. Indeed( the 2ost essential instru2ent for sti2ulating econo2ic growth in Nigeria is direct ta@a;le inco2e. >he residual test statistics as re"orted suggest that the 2odel is well ;eha-ed. In fact( the diagnostic test results are satisfactor1. >he "lots of the cu2ulati-e su2 of residuals [CA2A6] and cu2ulati-e su2 of sGuares of residuals [CA2A62B] show that the coefficient -ector is sta;le( o-er the sa2"le "eriod 8Figure 1=! 3-identl1( sta;ilit1 is endured for the "eriod under anal1sis. >his e2"iricall1 gi-es credence to statistical ro;ustness of our results in the stud1. @.:. Policy Implications of 8esults ,irect ta@ation in Nigeria is i2"erati-e. >he glo;al transition fro2 direct ta@ation to indirect ta@ation see2s to lac5 e2"irical ?ustification in Nigeria. !etroleu2 "rofit and co2"an1 inco2e ta@es are the 2ost effecti-e sources of generating ta@a;le inco2e for enhancing econo2ic growth in Nigeria. Indirect ta@ation in Nigeria has negati-e effect on econo2ic growth. >hus( the fa-oura;le ta@ structure is the one that gi-es weight to direct ta@ation "olic1 in Nigeria. >his indicates a significant change in the ta@ ;urden fro2 indirect to direct ta@ation. @.@. 2ynt'esis of t'e Present Empirical E<i!ence wit' Pre<ious Empirical E<i!ence 32"irical e-idence found in this stud1 is that direct ta@ation is growth enhancing. >his result contradicts those Foch( Schoe2an and 'an->onder 2))+#( 4ar1 and Jules 2))$#( Ariso1 and .nlu5a"lan 2)1)#. >he stud1 re"orted negati-e and insignificant i2"act of total indirect ta@ in the co2"osition of total ta@ re-enue. >his e2"irical finding is also not su;stantiated ;1 the e2"irical results of Cild2a2 2))1#( ,ah;1 2))*# and A-i-1onah and /argolioth 2))6# where a "ositi-e correlation ;etween indirect ta@ re-enue and econo2ic growth has ;een docu2ented. &n the ;asis of the fact that the econo2ic en-iron2ent under which the Nigerian econo21 o"erates as an e2erging econo21 differs fro2 those of
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the Asia( 3uro"e and A2erica( it thus i2"lies that the o;?ecti-e of "ro2oting econo2ic growth through the instru2entalit1 of ta@ation ought to generate conflicting results and hence contradictor1 e-idences.

/! #onclusion and #ontribution

In the stud1( an e2"irical in-estigation of the effect of ta@ation on econo2ic growth was carried out. Results of e2"irical tests show the statistical significance of econo2ic growth effects of direct ta@a;le inco2e while and the statisticall1 insignificant negati-e effect of indirect ta@ re-enue in the co2"osition of total ta@ re-enue on &DP growth. >he e2"irical findings hold that the "olic1 of direct ta@ation is a -erita;le instru2ent in enhancing the growth rate of the Nigerian econo21. In effect therefore( econo2ic growth in the short-run can ;e sti2ulated with the use of direct ta@ "olic1. >hus( the New National >a@ "olic1 which e2"hasiAes "olic1 shift fro2 direct to indirect ta@ation has no e2"irical ?ustification in Nigeria. 4ased on the e2"irical findings o;tained in this "a"er( we ne-ertheless reco22end that the i2"le2entation of direct ta@ation should ;e strengthened in Nigeria. >his 2eans that the current e2"hasis on the glo;al transition fro2 direct to indirect ta@ation as a 2eans of sti2ulating growth should ;e down "la1ed in Nigeria. It lac5s e2"irical ?ustification in Nigeria. Rather than e@"and the indirect ta@ structures( the go-ern2ent should e@"and the structures of direct ta@es in Nigeria. >he e2"irical "a"er closes the 5nowledge ga" induced ;1 inconclusi-e e-idence on the growth effects of ta@ation which 2ost often has resulted in situations where results of researches done in de-elo"ed econo21 are generaliAed to de-elo"ing countries. >he stud1 is countr1 s"ecific and it utiliAed ti2e series data and there;1 o-erco2es the cross-countr1 anal1sis that under2ines -aria;le differentials( "roducti-it1 differentials as reflected in different "roduction functions and a;o-e all( countr1 differentials. !re-ious e2"irical studies ado"ted cross-countr1 with cross section data anal1sis to relate 2easures of ta@ co2"osition and econo2ic growth under2ining the fact that cross-sectional studies can onl1 o;tain "ooled esti2ates that fails to disentangle results for an1 s"ecific countr1. And ;ecause the "ara2eters are heterogeneous across su;sets of units and errors 2ight ;e non-rando2 across te2"oral units. In addition( the stud1 2ade a significant 2ethodological i2"ro-e2ent on ta@ation and econo2ic growth anal1sis in -iew of the disaggregation of the ta@ -ector.

'e4erences
Aa2ir( /L Ka1uu2( AL Nasir( AL Iassain( SL Fhan( F.I 6 4utt. 2))1#( ,eter2inants of >a@ Re-enue. 7o2"arati-e Stud1 of ,irect >a@es and Indirect >a@es of !a5istan and India( International 7ournal of >usiness an! 2ocial 2ciences 2 1$#( 171-17$ A;u;a5ar( B./. 2))$#( National >a@ !olic1 in Nigeria. !residential Committee on National Tax Policy 7une 7th A;u?a. A;iAadeh( S. 1979#( >a@ Ratio and the ,egree of 3cono2ic ,e-elo"2ent( 6alaysian Economic 8e<iew, 2%9 21-*% A?a5ai1e( ,.&. 1999#( /acroecono2ic 3ffects of 'A> in Nigeria9 A 7o2"uta;le Eeneral 3Guili;riu2 Anal1sis. "E8C researc' paper 92. Ariso1 I. and I. .nlu5a"lan 2)1)#( >a@ 7o2"osition and Erowth in >ur5e19 An 32"irical Anal1sis. International 8esearc' 7ournal of *inance an! Economics Issue +99 +1 - 61 A-i-1onah( R. and B. /argalioth 2))6#( >a@ation in ,e-elo"ing 7ountries9 So2e Recent Su""ort and 7hallenges to the 7on-entional 'iew( OECD Conference paper 6ic'i,an law sc'ool, No-e2;er 4arr1( C. !. and E. F. Jules 2))$#( State Inco2e >a@es and 3cono2ic Erowth( 7ournal 2$ 1#9 +* - 71. 4aunsgaard( >. and /. Feen 2))+#( >a@ Re-enue and >rade Di;eraliAation( I6* Cor+in, paper No D:E%%(. 4leane1( /. N. Ee22ell and R. Fnellier 2))1#( >esting the 3ndogenous Erowth /odel9 !u;lic 3@"enditure( >a@ation and Erowth o-er the Dong-Run( Cana!ian 7ournal of Economics *%9 *6 -+7. 4ird( R. 2))*#( >a@ation in Datin A2erica9 Reflections on Sustaina;ilit1 and the 4alance ;etween 3Guit1 and 3fficienc1. 7osep' 3. 8otman 2c'ool of 6ana,ement, Ani<ersity of Toronto ITP paper D$@
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4urgess R. and N. Stern 199*#( >a@ation and ,e-elo"2ent. 7ournal of Economic Diterature *19 76* - $*) 7hartered Institute of >a@ation of Nigeria 2))2#( CITN Ni,eria Tax &ui!e 2tatutes Dagos9 7I>N. 7helliah R. J! 19$9#( 7hanges in >a@ Re-enue Structure9 A 7ase Stud1 of India in 7hanges in Re-enue Structures( Procee!in,s of t'e %2nd 7ongress of the International Institute of !u;lic Finance ,?an5or( S( >. Eanser( 7. /cliesh( R. Ra2alho and A. Shteifer 2))9#( >he 3ffect of 7or"orate >a@es on In-est2ent and 3ntre"reneurshi". N>E8 wor+in, paper No. %$F:@. 32ran S and J. StiglitA 2))+#( &n Selecti-e Indirect >a@ Refor2 in ,e-elo"ing 7ountries. 7ournal of Pu9lic Economics 1$9 +99 N62) 3ngen 3. and J. S5inner 1996#( >a@ation and 3cono2ic Erowth. National Tax 7ournal %9 %#( 617 6%2. Feder E. 19$2# !roduction Function for >wo Sectors9 >he 3@"ort and Non-e@"ort Sectors of the 7ournal of *inancial Economics, #ol.@, $922-$9. Ee22ell N. and &. /orrisse1 2))*#( >a@ Structure and the Incidence on the !oor in ,e-elo"ing 7ountries( Centre for 8esearc' in Economic De<elopment an! International Tra!e, .SA. Research "a"er No*. Eentr1 C. /. and R. E. Iu;;ard 2))2#( >a@ !olic1 and 3ntr1 into 3ntre"reneurshi". 7ournal of *inancial Economics, Erier ,. and E. >ulloc5 19$9#( >a@ation and 3cono2ic Erowth9 !olic1 and Anal1sis. 7ournal of *inancial Economics, $9126. Iall 4. 199*#( Research and ,e-elo"2ent >a@ !olic1 during the 19$)s9 Success or FailureH Tax Policy an! t'e Economy in J. !oter;a ed.# Cam9ri!,e 6"G 6IT Press. Iall R.3. and ,. C. Jorgerson 1967#( >a@ !olic1 and In-est2ent 4eha-iour. "merican Economic 8e<iew, +79*91 - %1% Jones D. 3 ( D R. S. /anuelle and !. 3. Rossi 199*#( &"ti2al >a@ation in /odels of 3ndogenous Erowth. 7ournal of Political Economy( 1)1 *# %$+-+17. Fadir J.A( /. Idris and O. /oha22ed 2)1)#( Iow Indirect >a@es 7ontri;ute to Eross National !roduct EN!. -ttGEEwww.international conference.comE.myEprocee!in,Eice9er, Farras A. and ,. Furceri 2))9#( >a@es and Erowth in 3uro"e. 2out' H Eastern Europe 7ournal of Economics 291$1- 2)% Foester R and R. For2endi 19$9#( >a@ation( Aggregate Acti-it1 and 3cono2ic Erowth9 7ross- 7ountr1 3-idence on so2e Su""l1-side I1"othesis( Economic In4uiry 279*67 - *$6. Fo2an R and ,. /arin 1999#( Iu2an 7a"ital and /acroecono2ic Erowth9 Austria and Eer2an 196)1997. /unich9 /unchener Cirtschafts- Cissenschaftliche 4eitrage( ,iscussion !a"er No 99-1). Dee B. and R. I. Eordon 2))+#( >a@ Structure and 3cono2ic Erowth. 7ournal of Pu9lic Economics $991)27-1)%*. De-ine R and ,. Renelt 1992#( A Sensiti-it1 Anal1sis of 7ross-countr1 Erowth Regressions. "merican Economic 8e<iew $2 %#9 9%2-6*. /argalioth B. 2))*#( >a@ 7o2"etition( Foreign ,irect In-est2ent and Erowth9 .sing the >a@ S1ste2 to !ro2ote ,e-elo"ing 7ountries. #ir,inia9 2*9161-2)%. /ariger R. 199+#( Da;our Su""l1 and the >a@ Refor2 Act of 19$69 3-idence fro2 !anel ,ata. /arsden F. 19$*#( Din5s ;etween >a@es and 3cono2ic Erowth9 So2e 32"irical 3-idence. Corld 4an5 Staff Cor5ing !a"ers No 6)% Cashington ,.7 /endoAa 3.E( /. /. F. Eian and !. Asea 1997#( &n the 3ffecti-eness of >a@ !olic1 in Altering Dongrun Erowth9 Iar;enger Su"er Neutralit1 7on?ecture. 7ournal of Pu9lic Economic, 66999-126. /endoAa 3.E( A. RaAin and R. D. >esa 199%#( 3ffecti-e >a@ Rates in /acroecono2ic 3cono2ies9 7ross 7ountr1 3sti2ates of >a@ Rates on Factor Inco2es and 7onsu2"tion. 7ournal of 6onetary Economics, *% *#( 297-*2% /c7arten C. J. and J. Stots51 199+#( 3@cise >a@es in !. Shorne ed# >a@ !olic1 Iand;oo59 I6* /c7arten C. 2))+#( >he Role of &rganiAational ,esign in the Re-enue Strategies of ,e-elo"ing 7ountries. !a"er !resented at Elo;al 'A> 7onference( Ro2e.
7+

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/iesA5ows5i !. 1969#( >a@ Incidence >heor19 >he 3ffect of >a@es on the ,istri;ution of Inco2e. 7ournal of Economic 3iterature, 7 %#( 11)* - 112% /1les E.,. 2)))#( >a@ation and 3cono2ic Erowth. *iscal 2tu!ies 21 1#( 1%1-16$ Ra2se1 E. and '. Ra2se1 199+#( 7ross-countr1 3-idence on the Din5 ;etween 'olatilit1 and Erowth. "merican Economic 8e<iew, $+ %#11*$-11+1. Reed C. R. 2))6#( >he Ro;ust Relationshi" ;etween >a@es and State 3cono2ic Erowth. Cor5ing !a"ers in 3cono2ies )6M*. Ro2er 7. and ,. Ro2er 2)))#( >he /acroecono2ic 3ffects of >a@ 7hanges9 3sti2ates ;ased on a New /easure of Fiscal Shoc5s. 'ttpGEEelsa9er+eley.e!uE!romer Scarlett I. E. 2)11#( >a@ !olic1 and 3cono2ic Erowth in Ja2aica. >an+ of 7amaica wor+in, paper >osun /.S. and S. A;iAadeh 2))+#( 3cono2ic Erowth and >a@ 7o2"onents9 An Anal1sis of >a@ 7hanges in &37,. "pplie! Economics, *7L 22+1-226* Cid2al2 F. 2))1#( >a@ Structure and Erowth9 Are So2e >a@es 4etter than &thersH Pu9lic C'oice 1)79199 - 219

5iographies David 637'6 is a Decturer in the ,e"art2ent of 3cono2ics( 4an5ing 6 Finance( 4enson Idahosa
.ni-ersit1( Nigeria. Ie recei-ed his >.2c. an! 6.2c. degrees in 3cono2ics fro2 the Ani<ersity of >enin. Ie crowned his studies with a P'.D in 3cono2ics fro2 Ani<ersity of >enin in colla;oration with the "frican economic 8esearc' Consortium ["E8C], Nairo;i( Fen1a. Iis current research interest includes 2onetar1 and health econo2ics. ,r .2oru is a consultant in econo2etrics anal1sis. 3! A! Ayinwe is Professor of Economics and a consultant in statistics and de-elo"2ent studies. She holds P'. D ,egree in 3cono2ics. She has authored 2an1 ;oo5s and articles. She has authored 2ore than 2) ?ournal articles in re"uta;le international and national ?ournals. Ier current research interest includes de-elo"2ent econo2ics issues. She is a 2e2;er of Nigerian 3cono2ic Societ1. ,r. An1inwe is lectures in the ,e"art2ent of 3cono2ics 6 Statistics( .ni-ersit1 of 4enin( Nigeria.

A88END"9 >a;le19 Results of Stationarit1 >ests ;ased on "D* an! PP >est /ethods
#aria9les PP Test 8esults Drift ITren! ;L.MLL ;:.L)$ ;:.L)$ ;@.M:) ;F.M$F ;@.F(( ;).L() ;:.:(@ ;:.LM: ;:.LM: ;F.:@M ;L.$M( ;:.::: ;@.:MF ;@.(@@ Anit 8oot Test 8esults "D* Test 8esults Drift ITren! ;@.)F$ ;@.@L( ;:.@L( ;:.F(( ;:.MFF ;:.F:)@ ;@.)L$NN ;:.F:) ;:.M$$ ;:.$LM ;@.$F$ ;:.@@@ ;:.($$ ;@.LL@N ;:.(M:$
76

8esult Inte,ration Or!er

3n[&PD] 3n[DT1] 3n[NT1] 3n[CNT] 3[PDT] 3n[PPD] 3n[EDT] 3n[CED] 3n[#"T] 3n[IN*] 3n[P&N] 3n[OPN] 3n[IN/] 3n[3TN] 3n[T*8]

Critical #alue J %K ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L ;).:)L

Critical #alue J %K ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;).)M( ;:.)M( ;).)M(

I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0 I(%0

2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary 2tationary

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>a;le 29 7o-integration >ests Results ;ased on JohansenJs /a@i2u2 Di5elihood E4uation % No of Co;inte,ratin, 3a, 3i+eli'oo! :K Critical %K Critical 8elations 3en,t' 8atio #alue #alue % (M).F$)N @M.:( %F@.DF - 9r =)
)

2tatistical Inference Co;inte,rate! Co;inte,rate! Co;inte,rate! Co;inte,rate! Co;inte,rate! Co;inte,rate!

- 9r 1
)

% % % % %

$F$.M:LN ($F.(FLN ()@.M)(N ($F.M@FN $)@.$$@N

().() )).%: :M.:( ((@.D (().()

%$$.:F %D$.%M ((.DF %@M.$@ %$$.:F

E4uation (
- 9r =)
)

- 9r 1
)

E4uation $
- 9r =)
)

- 9r 1
)

Notes: r !enotes t'e num9er of co;inte,ratin, <ector

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>a;le *9 ,isaggregated 3rror 7orrection 3sti2ates of the I2"act of >a@ation on 3cono2ic Erowth in Nigeria
Depen!ent #aria9leG D[&PD] Estimation % Estimation ( Estimation $ Intercept ;%.D)$(;D.$MM0 ;$.::$(;D.$$(0 ;%.$(L(;D.D$$0 Direct Tax Component(s0 %.$()().:L(0NNN D.(F((%$.@L@0NNN %.DF$(:.(M$0NNN 3n[CNT] %.)F((((.:):0NNN %.$@(((.$F)0NN %.$))(:.DD$0NNN 3n[PPD] %.D(M(L.:L:0NNN 3n[DT1] In!irect Tax Component(s0 D.(:)(($.$$L0NN D.%:((%.:(@0 D.($((%.(M$0 3n[CED] ;%.D:L(;D.:MF0 3n[NT1] Control #aria9le(s0 ;%.(@((;L.@@(0NNN ;(.:F$(;$.($D0NN ;%.DM((;:.:(M0NNN 3n[IN*] (.)D(((.LF:0NN (.D@M((.M:L0NN (.$M:(%.%(M0 3n[P&N] %.%DF(F.:(:0NNN %.((L(%%.:@)0NNN %.):)(@.@@$0NNN 3n[OPN] %.%F@(:.D)M0NNN 3n[IN/] ;D.(@@(;D.)::0 3n[3TN] (.DM@($.DF@0NN 3n[T*8] Error Correction Coefficient EC6(t;%0 ;D.F(:(;$.(L:0NN ;D.FL@(;L.($F0NNN ;D.MDM(;).:@M0NNN Dia,nostic Test 2tatistic(s0 8( ["!=uste! 8(] D.@:[D.@$:] D.MF$[D.M@:] D.M$L[D.M(:] *;statistic[Pro9.] @).$[D.DDD] )@.D[D.DDD] (@.:@[D.DDD] Dur9in;Catson (.DM$ (.D@M (.D() $$.@@[D.:DD] )(.D$[D.DD(] @.$:[D.DDL] >;& 36 2tatistic [Pro9.] "8C- Test 2tatistic [Pro9.] D.$$F[D.D$L] %.(D@[D.D):] %.D:[D.$D(] 7ar4ue;>era 2tatistic [Pro9.] D.$LL[(%.M@(] %.M(M[%.D:(@] %.D@([D.D(L] 8amsey 8E2ET Test[Pro9.] (.DD([D.DD(] (D.M:L[D.DDD] M.(FD[D.DDD] NoteG NNN(NN0 in!icates statistical si,nificance of <aria9les at %K(:K0 le<els respecti<ely Explanatory #aria9les

7$

Research Journal of Finance and Accounting ISSN 2222-1697 !a"er# ISSN 2222-2$%7 &nline# 'ol.%( No.2( 2)1*

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>a;le %9 !arsi2onious 3rror 7orrection 3sti2ates of the Relationshi" ;etween >a@ation on 3cono2ic Erowth in Nigeria
Depen!ent #aria9leG D[&PD] Coefficients Intercept (.(M((D.(:M0 D.::$((.)LL0NN 3n[CNT] %.:):(:.::@0NNN 3n[PPD] %.DMF(%%.$$:0NNN 3n[DT1] ;D.D@D(;(.MML0NN 3n[IN*] %.DM$(:.$LL0NNN 3n[OPN] %.M:D((.M@D0NN 3n[IN/] D.M(M((.$@$0NN 3n[T*8] EC6(t;%0 ;D.@$:(;$.((:0NNN 6o!el #ali!ationG Dia,nostic Test 2tatistics Test 6easure C'i;24uare 2tatistic 2tatistical Inference [Pro9a9ility] &oo!ness;of;2tatistical *it 8( ("!=uste!8( 0,*; L@.M(L:.:0,%DL.F 2i,nificant st Normality 2+ewness @.((([D.DDD] Positi<e .urtosis (M.@$:[D.DDD] 6eso+urtic 7ac4ue;>era %.D$$[D.:@)] &aussian Normality 2erial Correlation Dur9in;Catson (.DM) "9sent D.@(([D.DDD] "9sent >;& 36 2tatistic 2pecification >ias 8amsey 8E2ET (.$:@[D.DDD] "9sent Test -eteros+e!asticity C'ite Test 2tatistic D.M$@[D.DDD] -omos+e!astic 8esi!uals "8C- Test %.D:@[D.@M(] -omos+e!astic 8esi!uals 2tatistic NNN(NN0 in!icates statistical si,nificance of <aria9les at %K(:K0 le<els respecti<ely, t;<alues are reporte! in parent'esis 9elow eac' parameter estimate, [ ] contains pro9a9ilities Explanatory #aria9les

Figure 19 7.S./ and 7.S./SK !lots of Regression Residuals

15 10
1.2 1.6

5
0.8

0
0.4

-5 -10 -15 88 90 92 94 96 98 00 02 04 06 08 10
0.0

-0.4 88 90 92 94 96 98 00 02 04 06 08 10

CUSUM

5% Significance

CUSUM of Squares

5% Significance

79

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