Determinants of Tax Collection Efficiency in Nigeria

Abstract

The paper explores the determinants of tax collection efficiency in Nigeria using a Autoregressive Distributed Lag Model (ARDL) using quarterly data from 1996 to 2003. The study specifically investigates whether trade openness, inflationary trend, level of corruption, regulatory quality, government efficiency, per capital income, gross revenue, the level of gross domestic product (GDP) and population size have direct relationship with tax collection efficiency in Nigeria. The estimated results from the short run and long run error correction model show that the variable of interest exerts a positive and significant effect on tax collection efficiency in Nigeria except the lag value of inflation. The analysis reveals that the model is well-specified and has significant short-run dynamics and long-run relationships. Additionally, diagnostic tests confirm the model's robustness against heteroskedasticity and serial correlation, enhancing confidence in the reliability of the findings. The ECM suggests gradual adjustment toward long-term equilibrium, reinforcing the stability of the ARDL model. These results align with the institutional and structuralist theory of taxation which suggests that the structure of the economy and institutional capacity have direct bearing on tax collection efficiency. The result indicates the significant role of regulatory quality, measure of government efficiency, gross revenue, degree of openness, level of corruption, and the lag value of tax collection efficiency and inflation in tax collection efficiency.