Do the Consequence of Taxation Impact Household Consumptions in Nigeria? Absolute Outcome from Autoregressive Distributed Lag (ARDL)

Abstract

Purpose: This study investigated taxes’ effect on household consumption expenditure in Nigeria. Taxation was examined through Petroleum Profit Tax, Company income Tax, Value Added Tax, and Customs and excise duties while household consumption expenditure was proxied with the aggregation of households’ expenditure expended on daily needs and procurement of others useful products.Design/Methodology/Approach: The established data are sourced through Central Bank of Nigeria statistical bulletin and annual reports of federal Inland Revenue for a period of 31 years, spanning from 1990-2021, in order to examine the effect of taxation on household consumption expenditure in Nigeria. To achieve the motive behind this study, Autoregressive distributed lag Model, unit root test, Cointegration Test, correlation analysis, lag selection test, and regression, as well as normality test and stability test, were also involved as post-analysis confirmatory tests.Findings: It was discovered that Petroleum Profit Tax has significant, strong, and positive influence on household consumption, but Company income Tax, Value Added Tax, and Customs and Excise duties have negative significant influence on household consumption. Conclusively, taxes have a negative effect on household consumption expenditure in Nigeria.Originality: Having critically reviewed the existing studies, it was invariably realized that none of the extant studies examined how taxes influence household consumptions in Nigeria, their studies were confined to taxation effect on economic growth, investment, inflation, and government expenditure. Hence, this study incorporated Autoregressive distributed lag (ARDL) Model to analyze the effect of taxes on household consumption in Nigeria which made the study unique among the existing studies.