This study examines the effect of tax composition on economic growth in Nigeria using quarterly data spanning 2005Q1 to 2024Q4. Tax mix, measured as the ratio of direct tax revenue to indirect tax revenue, and tax progressivity, measured as the ratio of personal income tax revenue to total tax revenue, serve as the independent variables, while the inflation rate is included as a control variable. Employing the Autoregressive Distributed Lag bounds testing approach following the confirmation of a mixed order of integration through the Augmented Dickey–Fuller unit root test, the study establishes a long-run cointegrating relationship among the variables. The findings reveal that tax mix show a statistically significant positive effect on economic growth in both the short run and the long run. Tax progressivity have a significant positive short-run effect that is substantially reversed in subsequent periods, yielding a statistically insignificant long-run impact. Inflation consistently dampens economic growth across both time horizons. The study concludes that the composition of tax revenue is a consequential determinant of economic growth in Nigeria and recommends that policymakers prioritise broadening the direct tax base through improved compliance infrastructure, administrative modernisation, and the formalisation of the informal economy, while pursuing progressivity reforms primarily on equity rather than growth-promotion grounds.
Ndu et al. (Sat,) studied this question.