Taxes and Income Inequality In Nigeria: Cointegration and Error Correction Mechanisms Evidence from 1980 – 2018
Keywords:
Taxes; Income Inequality; Gini Coefficient; Error Correction Model; NigeriaAbstract
This study investigated the effects of taxes on income inequality in Nigeria for the period 1980 to 2018. The data for this research was obtained from the Central Bank of Nigeria, Federal Inland Revenue Service and National Bureau of Statistics. The data obtained were analysed using econometric methods such as augmented dickey fuller, cointegration and error correction mechanisms. The results revealed a significant negative relationship exists between personal income tax, company income tax and inequality; a negative but statistically insignificant relationship exist between value added tax and income inequality; a positive but statistically insignificant relationship exist between value added tax, government spending on education, government spending on health and income inequality. Hence the study concludes that taxes play a major role in income redistribution in Nigeria. The paper recommends amongst others that government should ensure compliance to tax payments because taxes provide a powerful policy tool effectively used for curing economic and social ills and should not to be set too high, as this would discourage investments and savings.
References
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Abomaye-Nimenibo, W.A.S.; Eyo, M.J. & Friday, H.C. (2018). An empirical analysis of tax revenue and economic growth in Nigeria from 1980 – 2015. Global Journal of Human Social Science, 18(3), 7 – 40.
Akhor, S. O., & Ekundayo, O. U. (2016). The impact of indirect tax revenue on economic growth: The Nigeria Experience. Igbinedion University Journal of Accounting, 2, 62 - 87.
Anyaduba, J.O. & Otubugbu, P.O. (2019). Taxation & income inequality in Nigeria, Accounting & Finance Research, 8(3), 118 – 135.
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Appah, E. & Zibaghafa, S. (2018). Anatomy of Public Sector Finance & Accounting, Port Harcourt, Rivers State: Vinson Printing and Publishing House.
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Atkinson, A.B. (2015). Inequality: What Can Be Done? Cambridge, MA: Harvard University Press.
Atkinson, A. B. & Piketty, T. (2010), Top Incomes: A global Perspective, Oxford: Oxford University Press.
Atkinson, A.B., & Leigh, A. (2010). ‘The distribution of top incomes in five Anglo-Saxon countries over the twentieth century’. IZA Discussion Paper 4937, May. Bonn: Institute for the Study of Labour (IZA). Available at: http://ftp.iza.org/dp4937.pdf (accessed 3 April, 2020).
Atkinson, A. B. & Stiglitz, J. E. (1976). The design of tax structure: direct and indirect taxation. Journal of Public Economics, 6, 55-75. https://doi.org/10.1016/0047-2727(76)90041-4
Awe, A. S. & Rufus, O. O. (2012). Determinant of income distribution in the Nigeria Economy:1977-2005 International Business and Management, 5(1),126-137.
Bakare, A. S. (2012). Measuring the income inequality in Nigeria: The Lorenz curve and Gini-coefficient Approach. American Journal of Economics, 2(1), 47-52. https://doi.org/10.5923/j.economics.20120201.06
Bastagli, F., Coady, D., & Gupta, S. (2013). Income inequality and fiscal policy. IMF Staff Discussion Note.
Bhartia H.L. (2009). Public Finance, New Delhi: Vikas Publishing House PVT Limited.
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.
Cano, L. (2017). Personal income tax & income inequality in Ecuador between 2007 and 2011. CEPAL Review, 123, 56 – 75.
Chen, K-S., Lee, C-C. & Tsai, H. (2019). Taxation of wealthy individuals, inequality governance and corporate social responsibility, Sustainability, 11, 1 – 23.
Chigbu, E. E., & Njoku, C. O. (2015). Taxation and the Nigerian economy: (1994-2012). Management Studies and Economic Systems (MSES), 2 (2), 111-128.
Cornia, G.A, Gómez-Sabaíni, J.C. & Martorano, B. (2011). ‘A new fiscal pact, tax policy changes and income inequality’. WIDER Working Paper 2011/70. Helsinki: UNU-WIDER. Available at: https://www.wider.unu.edu/sites/default/files/wp2011-070.pdf (accessed 3 April, 2020).
Ehigiamusoe, U.K. (2014). The nexus between tax structure & economic growth in Nigeria: A prognosis, Journal of Economics & Social Studies, 4(1), 113 – 140.
Fu, R. (2016) Does Indirect Tax Increase the Income Gap between Urban and Rural Areas? Open Journal of Social Sciences, 4, 170-176. http://dx.doi.org/10.4236/jss.2016.41021.
Goñi, E., Lopéz, J. & Servén, L. (2011). Fiscal redistribution and income inequality in Latin America’. World Development, 39(9): 1558–69.
Hanni, M., R. Martner Fanta, & A. Podestá (2015). ‘The Redistributive Potential of Taxation in Latin America’. CEPAL Review, 116 (August): 7–26.
Igbuzor, O. (2017). Opinion review on income inequality in Nigeria: Exploring the drivers. Retrieved from http:// www.THEWILLNigeria.com/news/ net.
Ihenyen, C.J. & Mieseigha, E.G. (2014). Taxation as an instrument of economic growth: The Nigerian experience, Information and Knowledge Management, 4(12), 49 – 54.
Ilaboya, O. J. & Ohonba, N. (2013). Direct versus indirect taxation and income inequality. European Journal of Accounting Auditing and Finance Research, 1(1), 1-15.
International Monetary Fund (IMF). (2014). Fiscal policy and income inequality. IMF Policy Paper Retrieved on April 3, 2020 fromhttps://www.imf.org/external/np/pp/eng/2014/012314.pdf
Iris, C., Martinez-Vazquez, J. & Vulovic, N. (2012). Government fiscal policy and redistribution in Asian countries. Asian Development Bank, Working paper series, 1-55.
Jibrin, S.M., Blessing, S.E. and Ifurueze, M.S.K. (2012). Impact of Petroleum Profit Tax on Economic Development of Nigeria. British Journal of Economics, Finance and Management Sciences, 5(2), 60-72.
Jhingan, M.L. (2014). Money, Banking, International Trade and Public Finance, Revised Edition, New Delhi: Vrinda Publications (P) Limited.
Kayizzi-Mugerwa, S. (2001). Globalisation, growth and income inequality: The African experience. OECD Development Centre. WP 186.
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Kumakura, M. & Kojima, D. (2018). Japan’s inequality and redistribution: The perspectives of human capital and taxation/social insurance, Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, 14(2), 663 – 690.
Lee, H., Kim, J. & Cin, B.C. (2013). Analysis on the determinants of income inequality in Korea. International Journal of Advanced Science and Technology, 53, 96-110.
Maina, A.W. (2017). The effect of consumption taxes on poverty and income inequality in Kenya, International Journal of Accounting & Taxation, 5(2), 56 – 82.
Mallaye, D., Yogo, T. U., & Timba, G. T. (2015). Oil rent and income inequality in developing economies: Are they friends or foes? Etudes et Documents, no 02, CERDI.
Manukaji, I.J. (2018). Effect of tax structure on economic growth in Nigeria. International Journal of Innovative Finance and Economics Research, 6(1), 1-11.
Martinez-Vazquez, J., Vulovic, V. & Liu, Y. (2011). Direct versus indirect taxation: Trends, theory and economic significance. The Elgar Guide to Tax Systems, Edward Elgar Publishing. 37-92 https://doi.org/10.4337/9780857933898.00009
Martinez-Vazquez, J., Vulovic, V. & Moreno-Dodson, B. (2012). The impact of tax and expenditure policies on income distribution: Evidence from large panel of countries. https://doi.org/10.2139/ssrn.2188608
Martin, W. & Crookes, D. (2013, June 30). Oil shock vulnerabilities & impacts: Nigeria case study. Report submitted to UK Department for International Development,
Martonrano, B. (2016). Taxation & inequality in developing countries: Lessons from the recent experience of Latin America, United Nations University World Institute for Development Economic Research. Wider.unu.edu.
Manukaji, I.J. (2018). Effect of tax structure on economic growth in Nigeria, International Journal of Innovative Finance and Economic Research, 6(1), 1 – 11.
Musgrave, R. A. and Musgrave, P. B. (2004). Public Finance in Theory and Practice, 5th ed., New Delhi: Tata McGraw.
Nasira, M. G., Haruna, M. A. & Abdullahi, M. A. (2016). Evaluating the impact of value added tax on the economic growth of Nigeria. Journal of Accounting and Taxation, 8(6), 59 – 65.
National Tax Policy of Nigeria. (2012). Final draft from the federal ministry of finance.
Nzotta, S. M. (2007). Tax evasion problems in Nigeria: A critique. Nigeria Accountant. 12(1): 40- 43
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), 187-196. https://doi.org/10.1515/mjss-2017-0017
Oboh, T. & Eromonsele, P. E. (2018). Taxation & income inequality in Nigeria, NG- Journal of Social Development, 7(1), 63 – 72.
Ogbonna, G.N. and Appah, E. (2012). Impact of tax reforms and economic growth of Nigeria: A time series analysis. Current Research Journal of Social Sciences, 4(1), 62-68.
Ogbonna, G. N., & Appah, E. (2016). Effect of tax administration and revenue on economic growth in Nigeria. Research Journal of Finance and Accounting, 7(13), 49 - 58.
Organization for Economic Co-operation and Development (OECD), (2012). Income inequality and growth: The role of taxes and transfers. OECD Economics Department Policy Notes, No. 9.
Ogbeide, E. N. O. & Agu, D. O. (2015). Poverty and income inequality in Nigeria: any causality? Asian Economic and Financial Review, 5(3), 439-452.
Okatch, Z., Siddique, A., & Rammohan, A. (2013). Determinants of income inequality in Botswana. Discussion Paper,13.15.
Onwuchekwa, J. C. & Aruwa, A. S. (2014). Value added tax and economic growth in Nigeria. European Journal of Accounting Auditing and Finance Research, 2 (8), 62 – 69
Ortiz, I., & Cummins, M. (2011). Global inequality: Beyond the bottom billion–A rapid review of income distribution in 141 countries. UNICEF Social and Economic Policy Working Paper. Retrieved on April 10, 2020 from http://www.networkideas.org/networkideas/pdfs/global_inequality_ortiz_cummins.pdf
Piketty, T. (2014). Capital in the twenty-first century, Harvard University Press.
Ramot, I. A. L., & Ichihashi, M. (2012). The effect of tax Structure on economic growth and income inequality. IDEC Discuss Paper 2012, Hiroshima University.
Rosen, H. S., & Gayer, T. (2014). Public Finance, (10th ed). United Kingdom: Mc Graw Hill Education.
Sameti, M. & Rafie, L. (2010). Interaction of income distribution, taxes and economic growth: The case of Iran and some selected East Asian countries. Iranian Economic Review, 14(25), 1-15.
Tsounta, E., & Osueke, A. (2014). ‘What is behind Latin America’s declining income inequality?’. IMF Working Paper WP/14/124. Washington, DC: International Monetary Fund (IMF). Available at: https://www.imf.org/external/pubs/ft/wp/2014/wp14124.pdf (accessed 3 April, 2020).
Umoru, D., & Anyiwe, M. A. (2013). Tax structures and economic growth in Nigeria: Disaggregated empirical evidence. Research Journal of Finance and Accounting, 4(2), 65 - 79.
Abdul-Rahamoh, O.A., Taiwo, F.H. & Adejare, A.T. (2013). The Analysis of the Effect of Petroleum Profit Tax on Nigerian Economy. Asian Journal of Humanities and Social Sciences (AJHSS) 1(1), 1-16.
Abomaye-Nimenibo, W.A.S.; Eyo, M.J. & Friday, H.C. (2018). An empirical analysis of tax revenue and economic growth in Nigeria from 1980 – 2015. Global Journal of Human Social Science, 18(3), 7 – 40.
Akhor, S. O., & Ekundayo, O. U. (2016). The impact of indirect tax revenue on economic growth: The Nigeria Experience. Igbinedion University Journal of Accounting, 2, 62 - 87.
Anyaduba, J.O. & Otubugbu, P.O. (2019). Taxation & income inequality in Nigeria, Accounting & Finance Research, 8(3), 118 – 135.
Anyanwu, J.C. (1993). Monetary Economics: Theory, Policy and Institutions. Hybrid Publishers, Onitsha.
Appah, E. (2019). Principles & Practice of Nigerian Taxation, Port Harcourt, Rivers State: Vinson Printing and Publishing House.
Appah, E. & Zibaghafa, S. (2018). Anatomy of Public Sector Finance & Accounting, Port Harcourt, Rivers State: Vinson Printing and Publishing House.
Atkinson, A. B. (2014), “After Piketty?”, The British Journal of Sociology, 65(4), 18 – 35.
Atkinson, A.B. (2015). Inequality: What Can Be Done? Cambridge, MA: Harvard University Press.
Atkinson, A. B. & Piketty, T. (2010), Top Incomes: A global Perspective, Oxford: Oxford University Press.
Atkinson, A.B., & Leigh, A. (2010). ‘The distribution of top incomes in five Anglo-Saxon countries over the twentieth century’. IZA Discussion Paper 4937, May. Bonn: Institute for the Study of Labour (IZA). Available at: http://ftp.iza.org/dp4937.pdf (accessed 3 April, 2020).
Atkinson, A. B. & Stiglitz, J. E. (1976). The design of tax structure: direct and indirect taxation. Journal of Public Economics, 6, 55-75. https://doi.org/10.1016/0047-2727(76)90041-4
Awe, A. S. & Rufus, O. O. (2012). Determinant of income distribution in the Nigeria Economy:1977-2005 International Business and Management, 5(1),126-137.
Bakare, A. S. (2012). Measuring the income inequality in Nigeria: The Lorenz curve and Gini-coefficient Approach. American Journal of Economics, 2(1), 47-52. https://doi.org/10.5923/j.economics.20120201.06
Bastagli, F., Coady, D., & Gupta, S. (2013). Income inequality and fiscal policy. IMF Staff Discussion Note.
Bhartia H.L. (2009). Public Finance, New Delhi: Vikas Publishing House PVT Limited.
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.
Cano, L. (2017). Personal income tax & income inequality in Ecuador between 2007 and 2011. CEPAL Review, 123, 56 – 75.
Chen, K-S., Lee, C-C. & Tsai, H. (2019). Taxation of wealthy individuals, inequality governance and corporate social responsibility, Sustainability, 11, 1 – 23.
Chigbu, E. E., & Njoku, C. O. (2015). Taxation and the Nigerian economy: (1994-2012). Management Studies and Economic Systems (MSES), 2 (2), 111-128.
Cornia, G.A, Gómez-Sabaíni, J.C. & Martorano, B. (2011). ‘A new fiscal pact, tax policy changes and income inequality’. WIDER Working Paper 2011/70. Helsinki: UNU-WIDER. Available at: https://www.wider.unu.edu/sites/default/files/wp2011-070.pdf (accessed 3 April, 2020).
Ehigiamusoe, U.K. (2014). The nexus between tax structure & economic growth in Nigeria: A prognosis, Journal of Economics & Social Studies, 4(1), 113 – 140.
Fu, R. (2016) Does Indirect Tax Increase the Income Gap between Urban and Rural Areas? Open Journal of Social Sciences, 4, 170-176. http://dx.doi.org/10.4236/jss.2016.41021.
Goñi, E., Lopéz, J. & Servén, L. (2011). Fiscal redistribution and income inequality in Latin America’. World Development, 39(9): 1558–69.
Hanni, M., R. Martner Fanta, & A. Podestá (2015). ‘The Redistributive Potential of Taxation in Latin America’. CEPAL Review, 116 (August): 7–26.
Igbuzor, O. (2017). Opinion review on income inequality in Nigeria: Exploring the drivers. Retrieved from http:// www.THEWILLNigeria.com/news/ net.
Ihenyen, C.J. & Mieseigha, E.G. (2014). Taxation as an instrument of economic growth: The Nigerian experience, Information and Knowledge Management, 4(12), 49 – 54.
Ilaboya, O. J. & Ohonba, N. (2013). Direct versus indirect taxation and income inequality. European Journal of Accounting Auditing and Finance Research, 1(1), 1-15.
International Monetary Fund (IMF). (2014). Fiscal policy and income inequality. IMF Policy Paper Retrieved on April 3, 2020 fromhttps://www.imf.org/external/np/pp/eng/2014/012314.pdf
Iris, C., Martinez-Vazquez, J. & Vulovic, N. (2012). Government fiscal policy and redistribution in Asian countries. Asian Development Bank, Working paper series, 1-55.
Jibrin, S.M., Blessing, S.E. and Ifurueze, M.S.K. (2012). Impact of Petroleum Profit Tax on Economic Development of Nigeria. British Journal of Economics, Finance and Management Sciences, 5(2), 60-72.
Jhingan, M.L. (2014). Money, Banking, International Trade and Public Finance, Revised Edition, New Delhi: Vrinda Publications (P) Limited.
Kayizzi-Mugerwa, S. (2001). Globalisation, growth and income inequality: The African experience. OECD Development Centre. WP 186.
Krugman, P. (2014, May 8). Why we’re in a new gilded age. The New York review of Books. Retrieved on April 3, 2020, from: http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/
Kumakura, M. & Kojima, D. (2018). Japan’s inequality and redistribution: The perspectives of human capital and taxation/social insurance, Policy Research Institute, Ministry of Finance, Japan, Public Policy Review, 14(2), 663 – 690.
Lee, H., Kim, J. & Cin, B.C. (2013). Analysis on the determinants of income inequality in Korea. International Journal of Advanced Science and Technology, 53, 96-110.
Maina, A.W. (2017). The effect of consumption taxes on poverty and income inequality in Kenya, International Journal of Accounting & Taxation, 5(2), 56 – 82.
Mallaye, D., Yogo, T. U., & Timba, G. T. (2015). Oil rent and income inequality in developing economies: Are they friends or foes? Etudes et Documents, no 02, CERDI.
Manukaji, I.J. (2018). Effect of tax structure on economic growth in Nigeria. International Journal of Innovative Finance and Economics Research, 6(1), 1-11.
Martinez-Vazquez, J., Vulovic, V. & Liu, Y. (2011). Direct versus indirect taxation: Trends, theory and economic significance. The Elgar Guide to Tax Systems, Edward Elgar Publishing. 37-92 https://doi.org/10.4337/9780857933898.00009
Martinez-Vazquez, J., Vulovic, V. & Moreno-Dodson, B. (2012). The impact of tax and expenditure policies on income distribution: Evidence from large panel of countries. https://doi.org/10.2139/ssrn.2188608
Martin, W. & Crookes, D. (2013, June 30). Oil shock vulnerabilities & impacts: Nigeria case study. Report submitted to UK Department for International Development,
Martonrano, B. (2016). Taxation & inequality in developing countries: Lessons from the recent experience of Latin America, United Nations University World Institute for Development Economic Research. Wider.unu.edu.
Manukaji, I.J. (2018). Effect of tax structure on economic growth in Nigeria, International Journal of Innovative Finance and Economic Research, 6(1), 1 – 11.
Musgrave, R. A. and Musgrave, P. B. (2004). Public Finance in Theory and Practice, 5th ed., New Delhi: Tata McGraw.
Nasira, M. G., Haruna, M. A. & Abdullahi, M. A. (2016). Evaluating the impact of value added tax on the economic growth of Nigeria. Journal of Accounting and Taxation, 8(6), 59 – 65.
National Tax Policy of Nigeria. (2012). Final draft from the federal ministry of finance.
Nzotta, S. M. (2007). Tax evasion problems in Nigeria: A critique. Nigeria Accountant. 12(1): 40- 43
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), 187-196. https://doi.org/10.1515/mjss-2017-0017
Oboh, T. & Eromonsele, P. E. (2018). Taxation & income inequality in Nigeria, NG- Journal of Social Development, 7(1), 63 – 72.
Ogbonna, G.N. and Appah, E. (2012). Impact of tax reforms and economic growth of Nigeria: A time series analysis. Current Research Journal of Social Sciences, 4(1), 62-68.
Ogbonna, G. N., & Appah, E. (2016). Effect of tax administration and revenue on economic growth in Nigeria. Research Journal of Finance and Accounting, 7(13), 49 - 58.
Organization for Economic Co-operation and Development (OECD), (2012). Income inequality and growth: The role of taxes and transfers. OECD Economics Department Policy Notes, No. 9.
Ogbeide, E. N. O. & Agu, D. O. (2015). Poverty and income inequality in Nigeria: any causality? Asian Economic and Financial Review, 5(3), 439-452.
Okatch, Z., Siddique, A., & Rammohan, A. (2013). Determinants of income inequality in Botswana. Discussion Paper,13.15.
Onwuchekwa, J. C. & Aruwa, A. S. (2014). Value added tax and economic growth in Nigeria. European Journal of Accounting Auditing and Finance Research, 2 (8), 62 – 69
Ortiz, I., & Cummins, M. (2011). Global inequality: Beyond the bottom billion–A rapid review of income distribution in 141 countries. UNICEF Social and Economic Policy Working Paper. Retrieved on April 10, 2020 from http://www.networkideas.org/networkideas/pdfs/global_inequality_ortiz_cummins.pdf
Piketty, T. (2014). Capital in the twenty-first century, Harvard University Press.
Ramot, I. A. L., & Ichihashi, M. (2012). The effect of tax Structure on economic growth and income inequality. IDEC Discuss Paper 2012, Hiroshima University.
Rosen, H. S., & Gayer, T. (2014). Public Finance, (10th ed). United Kingdom: Mc Graw Hill Education.
Sameti, M. & Rafie, L. (2010). Interaction of income distribution, taxes and economic growth: The case of Iran and some selected East Asian countries. Iranian Economic Review, 14(25), 1-15.
Tsounta, E., & Osueke, A. (2014). ‘What is behind Latin America’s declining income inequality?’. IMF Working Paper WP/14/124. Washington, DC: International Monetary Fund (IMF). Available at: https://www.imf.org/external/pubs/ft/wp/2014/wp14124.pdf (accessed 3 April, 2020).
Umoru, D., & Anyiwe, M. A. (2013). Tax structures and economic growth in Nigeria: Disaggregated empirical evidence. Research Journal of Finance and Accounting, 4(2), 65 - 79.
Published
2021-02-03
How to Cite
Appah, E., & Omesi, I. (2021). Taxes and Income Inequality In Nigeria: Cointegration and Error Correction Mechanisms Evidence from 1980 – 2018: Array. The Journal of Accounting and Management, 11(2). Retrieved from https://dj.univ-danubius.ro/index.php/JAM/article/view/412
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