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

This study examined the relationship among capital expenditure, taxation and economic growth in Nigeria. The main objective is to establish the extent to which capital expenditure relate with economic growth as posited by Wagner and to determine the nexus between taxation and economic growth. The specific objective is to evaluate the long run relationship among Petroleum Profit Tax (PPT), Company Income Tax (CIT), Value Added Tax (VAT), capital expenditure and economic growth based on time series data (1989-2019). The study was established on Wagner's (1883) Law of Ever-Increasing State Activities and Friedman Revenue Theory (1978). Secondary data were obtained from Federal Inland Revenue Services and Central Bank of Nigeria Statistical Bulletin. The Study adopted the descriptive analysis, regression, ARDL Cointegration test and error correction model. The results confirmed the existence of relationship among capital expenditure, PPT, CIT, VAT and real gross domestic product. The result indicated that in the long run capital expenditure and PPT had positive significant effect on economic growth while CIT and VAT had negative relationship with economic growth. It was also discovered that there was a causality running from capital expenditure to economic growth to support Wagner and that there was a causality running from taxation to economic growth according to Friedman. It is recommended that government should enhance fiscal synchronization, that is, decisions about capital expenditure and taxation should be made simultaneously to enhance economic growth.