Interaction Effect of Tax Revenue and Government Capital Expenditure on Economic Growth in Nigeria
Keywords:
ex-post facto; growth-oriented; infrastructure; RGDP; Wagner’s theoryAbstract
This study examines the effect of fiscal components on economic growth in Nigeria, specifically investigating how tax revenue, government expenditure, and other related indicators influence economic growth using an Autoregressive Distributed Lag regression analysis spanning 33 years. The results reveal that tax revenue and government capital expenditure exert statistically significant negative effects on RGDP, respectively, highlighting potential constraints these factors impose on economic growth. Conversely, government recurrent expenditure and gross fixed capital formation demonstrate insignificant impacts. Notably, the interaction between tax revenue and government capital expenditure shows a positive and significant effect on RGDP, suggesting a beneficial interplay that warrants further exploration. Additionally, total debt obligations appear to have a negligible influence. The model's robustness was further affirmed by the significant constant term. The study, therefore, emphasizes the intricate dynamics of fiscal policy, emphasizing the need for strategic government interventions to foster economic growth. Since tax revenue and government capital expenditure individually impact RGDP negatively, optimizing these economic factors will enhance overall economic performance. Fiscal authorities can reconsider the current tax structures and government expenditure strategies. The study also recommends prioritization of investment in government capital projects, this will ensure that expenditures maximize productivity and yield substantial returns that will stimulate economic growth. Executing tax incentives that encourage productive sectors investments can leverage the positive and significant interaction effect between tax revenue and government capital expenditure, fostering a more conducive environment for economic development. At the instance of negligible influence of total debt obligations, a careful appraisal of borrowing strategies should be undertaken to ensure that debt accumulation supports growth-oriented projects rather than becoming a financial burden.
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Copyright (c) 2026 Olufunmilayo Tope Afolayan, Uchechukwu Emena Okorie, Auwal Mohammed Adamu, Azeez Akanni Oyelekan
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