Estimating Tax Buoyancy for Nigeria in the light of Emerging Tax Reforms

Elias A. Udeaja, Mariam Yusuf and Peter F. Offum

Journal of Tax Reform, 2025, vol. 11, issue 1, 25-38

Abstract: The need to improve tax revenue amidst rising expenditure and debt levels has necessitated a plethora of tax reforms in Nigeria. Such reforms are usually tailored to enhance tax revenue by widening the tax net and promoting efficiency in tax administration. However, it is unclear whether there is dynamic tax buoyancy in Nigeria in the light of emerging tax reforms. Tax buoyancy provides valuable insights about the role of a country’s tax system in macroeconomic stabilisation and fiscal sustainability. This study, therefore, estimates the dynamic tax buoyancy for Nigeria, using data for the period spanning 2010Q1 to 2023Q4, through the mechanism of an error correction model. The buoyancy indicates whether collectability of the tax on income, profit, and consumption increases. We estimate a baseline error correction model before controlling for the contraction and expansion phases of the business cycle, discretionary tax policy changes and inflation. The baseline result indicate tax buoyancy estimates of less than one both in the short-run and long-run, with that of the short-run closer to one. Considering the phases of the business cycles, the buoyancy estimates were not statistically significant as in the case of controlling for discretionary tax policy changes. Finally, accounting for the role of inflation yielded a buoyancy estimate less than one, suggesting absence of short-run and long-run buoyancy. These findings highlight the inefficiencies in the Nigerian tax system, where tax revenues do not grow in tandem with output and discretionary tax policy changes. The paper, therefore, recommends the need for policy to focus on the maximization of tax revenue by plugging leakages through the intensification of the use of technology in tax administration.

Keywords: tax buoyancy; inflation; business cycle; fiscal policy; error correction model (search for similar items in EconPapers)
JEL-codes: C22 E31 E32 E62 H21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:aiy:jnljtr:v:11:y:2025:i:1:p:25-38

DOI: 10.15826/jtr.2025.11.1.190

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