Capital Expenditure and the Impact of Taxation on Economic Growth in Nigeria

The value of the F-statistics is 3.782426 and the critical lower and upper bound test is presented in table 4.4. The result revealed that the F-statistics exceed the upper bound at both 10per cent and 5per cent significant level, we can therefore reject the null hypothesis and accept that alternative hypothesis thereby concluding that there is evidence of cointegration relationship between gross domestic product growth rate and total capital expenditure, petroleum profit tax, company income tax and value added tax. We can therefore proceed to estimate the long-run analysis.

4.1.4 Autoregressive Distributed Lag (ARDL) Test

Table 4.4 Results of Autoregressive Distributed Lag Analysis (ARDL)

Source: Researcher’s computation (2020)

This table presents the result obtained from estimating the ARDL unrestricted error correction (short run or dynamic) model and the ARDL long-run (static) model in equation. long run multiplier coefficient of ARDL.It is confirmed from the results that company income tax and value added tax had negative impact on economic growth, while, petroleum profit tax and government capital expenditure had positive impact on economic growth in Nigeria. The co integration equation is:

GDPGRt = -26.82433 – 0.7715log(CIT)t + 5.8369log(PPT)t + 5.9051log(GCE)t– 5.7664log(VAT)t

In the long run petroleum profit tax had a positive and significant impact on economic growth which conform with the Friedman Tax Revenue Theory (1978) and in tandem with the works of Onakoya and Afintinni (2016), Oladipupo and Ibadin (2015). There is need to emphasize here that the result discussed above do not analyze the short-run relationship of the respective variables. When co integration exists, the Engle-Granger Theorem establishes the encompassing power of the error correction mechanism over other forms of dynamic specifications. The next section reports the results of the Error Correction Mechanism

4.2 Testing of Hypotheses

From the regression analysis results, it was revealed that company income tax have a negative impact on economic growth rate at 5per cent significant level. This implies that company income tax does not have influence on Nigeria economic growth. Also, petroleum profit tax was found to have a positive significant relationship with economic growth. This implies that as more petroleum profit tax is been paid the economic growth rises However, government capital expenditure has a positive relationship with on economic growth at 5per cent significant level. This implies that government capital expenditure does have influence on Nigeria economic growth. Lastly, value added tax was found to have a negative significant relationship with economic growth. This implies that as more value added tax is been paid the economic growth declines. The result further shows that a 1per cent increase (increase) in value added tax on average leads to about 4.02577 per cent increase (decrease) on economic growth.

4.3 Discussion of Findings

From the results, the ECM term is well defined, that is negative and statistically significant at 5per cent level. The coefficient is -0.612168which indicates approximately 61.2168 percent of the previous year’s disequilibrium in economic growth is been corrected by company income tax, petroleum income tax, government capital expenditure and value added tax. This also shows the speed at which the model converges to equilibrium. The magnitude of this coefficient implies that nearly 61.2168 percent of any disequilibrium in economic growth is corrected by some of the selected variable within one period (one year). The implication is that the present value of economic growth will adjust to changes in company income tax, petroleum income tax, government capital expenditure and value added tax. The results further showed that company income tax has a negative insignificant impact on economic growth rate at 5per cent significant level. This implies that company income tax does not have influence on Nigeria economic growth. This work isnot consistent with Friedman Tax Revenue Theory (1978). The result further shows that a 1per cent increase (decrease) in company income tax on average leads to about 4.6099 per cent decrease (increase) on economic growth. This contradicts the Friedman Tax Revenue Theory (1978) but conform to the work of Edame and Okoi (2014).