Abstract
This study examines the relationship between tax policy and economic growth in Nigeria, with emphasis on its efficacy, structural constraints, and reform pathways. The persistent volatility of oil revenue and the low tax to GDP ratio in Nigeria have renewed policy interest in taxation as a sustainable source of development finance. Using annual time series data covering the period 1990 to 2024, the study investigates both the long run and short run dynamics between tax policy variables and economic growth. The analysis employs Augmented Dickey Fuller and Phillips Perron unit root tests, Johansen cointegration technique, and the Autoregressive Distributed Lag model with an Error Correction Mechanism. The findings reveal that tax revenue has a positive and statistically significant effect on economic growth in the long run, indicating that improved domestic revenue mobilisation can enhance fiscal capacity and support productive economic activities. Government expenditure also exerts a positive long run effect, while inflation shows a negative relationship with growth. Tax compliance emerges as an important driver of fiscal effectiveness, reflecting the central role of administrative efficiency and taxpayer behaviour in the tax growth nexus. In the short run, however, the effect of tax revenue on growth is positive but weak, suggesting delayed policy transmission, institutional rigidities, and inefficiencies in expenditure management. The error correction term is negative and significant, confirming the existence of a stable long run equilibrium relationship. The study concludes that tax policy can serve as a viable instrument for sustainable economic growth in Nigeria, but its effectiveness remains constrained by narrow tax bases, widespread informality, multiplicity of taxes, weak compliance, and governance challenges. We recommend tax base broadening, digital transformation, institutional harmonisation, and governance reforms.