ENDOGENOUS GROWTH MODEL, TAX REVENUE AND ECONOMIC GROWTH: EVIDENCE FROM NIGERIA MACRO DATA

Abstract

The study tried to ascertain the applicability of the endogenous growth model postulate on labour and capital tax, in Nigeria. The model postulates that economic growth is endogenously determined through the accumulation of human and capital resources, technological progress, knowledge, tax of labour and capital income. Further studies had shown that imposing a tax on labour and capital income can deter economic growth rate but when used to finance public goods and services that are productive, the economy can be spurred into growth. Anchoring on this background, this study sees tax on labour and capital income as revenue to the government, if used to finance productive public goods and services would spur the economy into growth.  Using Nigeria macro time-series data and adopting Error Correction Mechanism as the estimation technique alongside Autoregressive Distributed Lag Model, with Engle and Granger Cointegration approach for a diagnostic test, the result revealed that the current value of tax deters growth while its past value which is seen as revenue, enhances economic growth. Also, the assertion that productive government expenditure would spur the economy to higher growth is confirmed to be affirmative. The study, therefore, concludes that the endogenous growth model is applicable in Nigeria. Tax deter growth but revenue enhances growth. It was therefore recommended among others that government should diversify the economy into non-oil related areas, and its spending must continually be productive.