Assessing the relationship of Personal and Consumption Taxes on Human Development in Nigeria

Abstract This study investigates the relationship between personal income tax and value-added tax on human development in Nigeria over the period 1994 to 2023, with the Human Development Index serving as the dependent variable. Employing an ex-post facto research design, the study utilizes secondary data obtained from the Nigerian Revenue Service and the Nigerian Bureau of Statistics. The study develops functional, mathematical, and operational models to examine the relationship between tax revenue and human development outcomes, and specifies a priori expectations that increase in PIT and Value Added Tax positively influence Human Development Index. The data analysis includes stationarity tests using the Augmented Dickey–Fuller test, the Autoregressive Distributed Lag estimation, lag length selection, bounds cointegration test, and estimation of the long-run Autoregressive Distributed Lag model with error correction. Results indicate that Personal Income Tax is stationary at level, while Human Development Index and Value Added Tax are stationary at first difference, confirming the suitability of the Autoregressive Distributed Lag approach. The Autoregressive Distributed Lag and long-run estimates reveal that both Personal Income Tax and Value Added Tax have Autoregressive Distributed Lag and statistically significant impacts on Human Development Index, with Tax and Value Added Tax exerting a slightly stronger effect. The bounds test confirms the existence of a long-run equilibrium relationship among the variables. The findings underscore the importance of tax revenue mobilization and effective allocation in enhancing human development, supporting the theoretical perspectives of Human Capital Theory and the Ability-to-Pay Theory. The study concludes that sustained increases in Personal Income Tax and Tax and Value Added Tax, coupled with efficient public expenditure, contribute significantly to improving life expectancy, education, and standard of living in Nigeria. Policy recommendations emphasize enhancing tax administration, reducing revenue leakages, improving public accountability, and linking tax revenue to targeted developmental programs to achieve sustainable improvements in Human Development Index.https://www.gphjournal.org/index.php/ams/article/view/2352