Direct Tax and Income Redistribution

Authors

  • Obehioye Akogo University of Benin
  • Bukola Adefunke Akadakpo University of Benin

Abstract

The aim of this paper is to examine the effect of direct tax as a tool for income redistribution in Nigeria. The research design employed in the study is the longitudinal design. The population and sample of this study focused mainly on direct taxes which include; petroleum profit tax (PPT), personal income tax (PIT), company’s income tax (CIT) and education tax (ED), that are domicile in Nigeria. The timeframe spanned 1990-2020. Data was sourced from world statistics, federal inland revenue service and central bank statistical bulletin. The data for the study was analysed using the error correction model.

The Result from the inferential statistic employed revealed that company income tax and education tax had no significant effect on income redistribution; while personal income tax and petroleum profit tax had significant effect on income redistribution. Furthermore, personal income tax had positive effect on income redistribution while petroleum profit tax had negative effect on income redistribution. The study recommended that there should be introduction and proper implementation of a luxury tax system where the rich will be made to pay tax consuming more luxury goods than the poor. The revenue generated from luxury tax should be used to implement free education and medical services for low-income earners. Education taxes should be used to fund scientific projects and used to sponsor low-income earners abroad.

References

Adigun, G., & Awoeemi, T. (2014). Economic growth, income redistribution and poverty reduction: Experiences from Rural Nigeria. Asian Journal of Agricultural Extension Economics & Sociology, 3(6):638-653.
Anyaduba, J. O., & Otulugbu, P. O. (2019). Taxation and Income Inequality in Nigeria. Accounting and Finance Research, 8(3), 118-135.
Awe, A. A., & Olawumi, O. R. (2012). Determinants of income distribution in the Nigerian economy: 1977-2005. International Business and Management, 5(1), 126-137.
Bird, R. M. & Zolt, E. M. (2014). Redistribution via taxation: The limiting role of the personal income tax in developing countries. Journal of Economics and Finance, 15(2), 625-683.
Bourguignon, F. (2003). The growth elasticity of poverty reduction: explaining heterogeneity across countries and time periods. Retrieved from https://www.researchgate.net/publication/4861703_The_growth_elasticity_of_poverty_reduction_explaining_heterogeneity_across_countries_and_time_periods
Chu, K., Davoodi, H., & Gupta, S. (2000). Income distribution and tax and government social spending policies in developing countries. IMF Working Paper, 00/62 (Washington: International Monetary Fund).
Clements, M. (1997). Evaluating the rationality of fixed-event forecasts. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1002/%28SICI%291099-131X%28199707%2916%3A4%3C225%3A%3AAID-FOR656%3E3.0.CO%3B2-L
De Mello, L., & Tiongson, E. (2006). Income inequality and redistributive government spending. Public Finance Review, 34(3), 282-305.
Fosu, A. K. (2010). Growth, inequality and poverty reduction in developing countries: Recent global evidence. Retrieved from https://www.oecd.org/dev/pgd/44773119.pdf
Hagopian, K. (2011). The inequality of the progressive income tax. Policy Review, 1(4), 3-27.
Heshmati, A. (2004). Growth, inequality and poverty relationships. Retrieved from http://ftp.iza.org/dp1338.pdf.
Jao, C. C. (2000). The impact of tax revenue and social welfare expenditure on income distribution in Taiwan. Journal of the Asia Pacific Economy, 5(1-2), 73-90.
Kaisa A., Mika H., & Jukka P. (2019). The effects of the value-added tax on revenue and inequality. The Journal of Development Studies, 55(4), 490-508.
Libabatu, S. G. (2014). Tax revenue and economic growth. An unpublished Thesis submitted to the school of post graduate studies of Ahmadu Bello University, Zaria.
Lustig, N. (2018). Does Fiscal Policy Reduce Inequality and Poverty? Evidence from Low and Middle Income Countries. Retrieved from https://www.oecd.org/naec/Lustig_CEQ@OECD_June%2019%202018.pdf
Madzinova, R. (2017). Impact of government spending on income inequality, Annals of Faculty of Economics. University of Oradea, Faculty of Economics, 1(2), 210-220.
Mahler, V. A., & Jesuit, D. K. (2006). Fiscal redistribution in the developed countries: New insights from the Luxembourg income study. Socio-Economic Review, 4(3), 483-511.
Martinez-Vazquez, J. (2008). The impact of budgets on the poor: tax and expenditure benefit incidence analysis, in public finance for poverty reduction, Blanca Moreno-Dodson and Quentin Wodon (eds.) World Bank.
Martinez-Vazquez, J., Moreno-Dodson, B., & Vulovic, V. (2012). The impact of tax and expenditure policies on income distribution: Evidence from a large panel of countries. International Center for Public Policy, Working Paper 12-25.
Martinez-Vazquez, J., Vulovic, V., & Dodson, B. M. (2014). The impact of tax and expenditure policies on income distribution: Evidence from a large panel of countries. Hacienda Pública Española, 200(12), 95-130.
Meadowcroft, J. (2007) Tax, equity and redistribution. Journal Compilation, Institute of Economic Affairs. Blackwell Publishing
Nyenke, C. U., & Amadi, N. N. (2019). Taxation and income inequality in Nigeria. Advance Journal of Economics and Marketing Research, 4(3), 104-116.
Obaretin, O., Akhor, S. O., & Oseghale, O. E. (2017). Taxation an effective tool for income redistribution in Nigeria. Mediterranean Journal of Social Sciences, 8(4), 197-196.
Olusanya, S. O., Peter, M., & Oyebo, A. F. (2012). Taxation as a fiscal policy instrument for income redistribution among Lagos state civil servants. IOSR Journal of Humanities and Social Sciences, 5(X), 60-70.
Omoniyi, B. B. (2017). An examination of the causes of poverty on economic growth in Nigeria. Africa’s Public Service Delivery and Performance Review 6(1), 175-187.
Prasad, N. (2008). Policies for redistribution: The use of taxes and social transfers. Discussion Paper, International Institute for Labour Studies.
Saez, E. (2004). Direct or indirect tax instruments for redistribution: Short-run versus long-run. Journal of Public Economics, 58(2), 503-518.
Studenmund, A. H. (2014). Using econometrics: A practical guide. Harlow, England: Pearson Education Limited.
The Guardian (2020, May 27). Lingering poverty and consequences. Retrieved from https://guardian.ng/opinion/lingering-poverty-and-consequences/
Ugbede, J. (2020). Nigeria: extreme inequality in numbers. Retrieved from https://www.oxfam.org/en/nigeria-extreme-inequality-numbers

Downloads

Published

2022-01-17

How to Cite

Akogo, O., & Akadakpo, B. A. . (2022). Direct Tax and Income Redistribution: Array. The Journal of Accounting and Management, 12(1). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/1506

Issue

Section

Articles