An econometric analysis of the impact of taxation on domestic investment in Nigeria

Abstract

This study sought to investigate the relationship between government tax revenue and domestic investment in Nigeria using annual time series data spanning the period 1980-2017. The study employs the ARDL bounds testing approach to examine the long and short run relationship between the variables of interest. The bounds test suggested that the variables in the model are bound together in the long run. The associated Error Correction Model was also significant confirming the existence of long-run relationships. The empirical results showed that Personal Income Tax have a significant positive effect on domestic investment in both the short and long run, Value Added Tax has a significant negative impact in the long run only while Company Income Tax has a significant positive influence on domestic investment in the short run only. For the control variables, Interest Rate and FDI both parade evidences of a significant negative impact on domestic investment in both the short and long run while Stock Market Capitalization had a significant positive effect on domestic investment in the long run only. The study therefore recommends improvement of the infrastructural base, political and macro-economic stability and provision of credit facilities to domestic investors at low interest rate.