Tax Revenue, Tax Reform and Government Expenditure: The Case of Nigerian Economy (1994 – 2017)

The objective of this study is to empirically investigate the effect of tax revenue and years tax reforms on government expenditure in Nigerian. Tax revenue were explained using custom and excise duties, company income tax, value-added tax and tax reforms explained by the years in which reforms took place measured by dummy variables as proxies. In conducting this research, an annual time series data from central bank statistical bulletins and Federal Inland revenue Service of Nigeria spanning from 1994-2017 were employed. The data were tested for stationarity using the Augmented Dicker-Fuller Unit Root Test and found stationary at first difference. The Johansen co-integration test was also conducted and showed that the variables are co-integrated at the 5% level, which implied that there is a long-run relationship between the variables in the model. The presence of co-integration spurred the use of vector error correction model and VEC granger causality to determine the effects and decision for the study objective. Findings revealed that Customs and Excise Duties has positive (3.96) and significant (-8.38) impact on government expenditure at 5% level of significance (t=8.38>1.96), Company Income Tax has negative (-1.25) and significant (2.98) impact on government expenditure at 5% level of significance (t=2.98>1.96), Value added tax has positive (8.54) and significant (3.90) impact on government expenditure at 5% level of significance (t=3.90>1.96) and Tax reforms periods has negative(-3.52E+12) and significant (8.39) impact on government expenditure at 5% level of significance (t=8.39>1.96). The study thus concluded that tax revenue and tax reforms significantly affect the Nigerian economy with the direction of causation running from government revenue to government expenditure, supporting the revenue-spend or tax-spend hypothesis. It was recommended while seeking to increase its revenue base via tax should also increase their expenditure profile to create a balance with the tax revenue and every other tax reform should be geared towards this balance.