Impact of Tax Revenue on Government Investment Levels in Nigeria

Government investments are pivotal for sustainable growth and improvement in the standard of living of citizens, address immediate needs and lay the foundation for future growth and development. Extant literature has associated Nigeria’s low economic development to declining government investment levels. Studies highlight the critical relationship between tax revenue (personal income tax, company income tax, value-added tax, petroleum profit tax) and government investment levels, as tax revenue funds public services and developmental activities. However, the influence of tax revenue on government’s investment levels in Nigeria remains a subject of considerable debate with studies offering contrasting perspectives. Therefore, this study examined the impact of tax revenue on government investment levels in Nigeria, utilizing 43 years (1980-2023) of data sourced from the Central Bank of Nigeria and the World Bank. Employing the Fully Modified Ordinary Least Squares model, the findings indicated that tax revenue influences government investment levels in Nigeria. The study recommends that policymakers overhaul tax-based project funding systems for efficient allocation and utilization of tax revenues. In addition, it recommends the strengthening of tax administration in the country for effectiveness in tax revenue collection.