Tax revenues, government expenditures and economic development in Nigeria

Abstract

This study employs a mixed-method approach to investigate the relationship between tax revenue, government expenditure, and economic development in Nigeria from 2014 to 2023. Secondary data was sourced from the Federal Inland Revenue Service of Nigeria's tax promax, UNDP publications, and the Central Bank of Nigeria (CBN) website. The stationarity of the time series data was verified using augmented unit root tests, while the presence of autoregressive conditional heteroscedasticity (ARCH) was assessed through Arch tests. Linear regression analysis quantified the relationships among tax revenue, government expenditure, and the Human Development Index (HDI). The findings reveal that a one-unit increase in tax revenue correlates with a significant decrease in HDI (-4.1106 units, p = 0.0370), suggesting that higher taxes may impede human development. Conversely, a one-unit increase in government expenditure is significantly associated with an increase in HDI (2.8106 units, p = 0.0003), highlighting the positive impact of public spending on human development. The model explains approximately 90.996% of the variance in HDI, with a high adjusted R-squared of 0.88424. These results indicate that while increased taxation can negatively affect human development, effective and transparent government spending in critical sectors like education and healthcare can foster significant improvements. The study underscores the need for strategic tax reforms and efficient allocation of public expenditure to enhance Nigeria's economic development and human well-being.