EXPLORING THE CAUSAL NEXUS BETWEEN TAX COMPOSITION, INFRASTRUCTURE, AND ECONOMIC PERFORMANCE IN NIGERIA

Abstract

This study investigates the causal relationships among tax composition, infrastructure
investment, and economic performance in Nigeria from 1993 to 2022, employing the Granger
causality test within a linear regression framework. Tax composition was dis-aggregated into
value-added tax (VAT), personal income tax (PIT), company income tax (CIT), petroleum
profit tax (PPT), and customs and excise duties (CED), while infrastructure was measured by
infrastructural development. Findings reveal a unidirectional causality from VAT and CIT to
economic performance, indicating these taxes' significant impact on growth. A bidirectional
relationship is observed for PIT, suggesting mutual reinforcement between personal income
and economic activity. PPT also exerts a unidirectional effect on growth, while CED shows no
significant causality. Notably, economic performance influences infrastructure development
unidirectionally, challenging the infrastructure-led growth hypothesis. These insights
underscore the varied impacts of different tax components on Nigeria's economic performance.
Policy recommendations include enhancing tax administration, promoting tax education, and
fostering policies that support compliance and optimal allocation of tax revenues to stimulate
growth and infrastructure. This analysis provides a nuanced understanding of fiscal strategies
for sustainable development, highlighting areas where targeted tax reform can yield significant
economic benefits.