Tax Revenue and Economic Growth in Nigeria: A Toda–Yamamoto Granger Causality Approach

This study examines the causal relationship between tax revenue and economic growth in Nigeria using the Toda–Yamamoto Granger causality approach over the period 1995–2024, with particular attention to the changing structure of taxation and recent fiscal reforms. Unlike studies that rely on aggregate tax revenue, the analysis decomposes tax revenue into corporate income tax, value-added tax, petroleum profit tax, and customs and excise duties to capture their differential growth effects. Trend analysis reveals significant structural shifts in Nigeria’s tax system, characterized by a gradual transition from oil-based revenues toward non-oil taxes. Unit root tests indicate mixed orders of integration among the variables, justifying the application of the Toda–Yamamoto methodology, which enables robust causality inference without requiring pre-testing for cointegration. The empirical results show unidirectional causality running from corporate income tax and value-added tax to real gross domestic product, suggesting that non-oil taxes play a significant growth-enhancing role in Nigeria. Conversely, economic growth is found to Granger-cause petroleum profit tax and inflation, reflecting the reactive nature of oil-based revenues and the influence of output growth on macroeconomic conditions. Customs and excise duties exhibit limited causal impact on economic growth. Overall, the findings demonstrate that tax structure, rather than aggregate tax revenue, is critical for growth outcomes. The study provides empirical support for Nigeria’s ongoing fiscal reforms aimed at expanding non-oil revenue sources and underscores the importance of efficient tax administration and productive public spending in sustaining long-term economic growth.