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IMPACT OF TAXATION ON ECONOMIC GROWTH

IMPACT OF TAXATION ON ECONOMIC GROWTH

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IMPACT OF TAXATION ON ECONOMIC GROWTH

Chapter one

INTRODUCTION

Background for the Study

Taxation is a cornerstone of any nation’s financial architecture, serving as a primary source of government revenue (Abu & Mohammed Gamal, 2022). It is an important tool used by governments to support public services, infrastructure, and other vital tasks.

The fiscal authority generated from taxation allows governments to enact policies that determine a country’s economic trajectory (Afonso & Leal, 2019).

The intertwining of taxation and economic policies emphasises its critical role in shaping the entire economic environment. Researchers such as Alesina and Ardagna (2020) have investigated the complex relationship between taxation and economic growth, recognising the global importance of comprehending this interplay.

Taxation’s impact on economic growth has received a lot of attention and debate around the world. A slew of research, including Alinaghi’s (2017) study on OECD countries and Babatunde et al.’s (2017) meta-regression analysis of tax revenue and economic growth in Africa, add to the ongoing discussion.

These research’ findings show the multifaceted nature of this relationship, emphasising the importance of nuanced considerations when developing tax policies.

The difficulty of encouraging long-term economic growth characterises Nigeria’s economic landscape, as it does for many developing countries. Against this environment, taxes appears as a vital tool for policymakers.

The Ogun State Internal Revenue Service (OGIRS) is a key component of the state’s fiscal machinery, in charge of tax assessment, collection, and management (Ebiringa and Yadirichukwu, 2022).

The importance of OGIRS in the economic dynamics of Ogun State necessitates a thorough analysis to determine its impact on economic growth.

This study, inspired by Ibadin and Olugoke’s (2021) work on indirect taxes and economic growth in Nigeria, seeks to uncover the complexity of the relationship between taxation and economic growth in the context of Ogun State.

The critical role taxation plays in financing public goods and services emphasises the inextricable link between taxation and economic development. Tax money helps to fund investments in infrastructure, education, and healthcare, laying the groundwork for economic progress.

This symbiotic relationship is particularly important in Nigeria, where Salami et al. (2015) investigated the link between taxation and economic growth.

The insights gained from such studies help to better understand the specific problems and opportunities that Ogun State faces in leveraging taxation for economic growth.

Nigeria’s economic environment is defined by its status as a developing country, requiring a deliberate strategy to achieve long-term economic progress. Taxation is an important part of the economic growth plan because of the issues it presents.

The current analysis used OGIRS as a case study, which is consistent with the findings of Prillaman and Meier (2022), who examined the influence of pro-business taxes on US state economies.

By thoroughly investigating OGIRS, the study hopes to provide a more nuanced understanding of the relationship between taxing policy and economic growth in Ogun State.

Statement of the Problem

The examination of the impact of taxation on economic growth, particularly in the setting of the Ogun State Internal Revenue Service (OGIRS), reveals significant shortcomings that should be addressed.

While current research, such as Abu and Mohammed Gamal’s (2022) work on tax revenue behaviour in the face of corruption in Nigeria, provides useful insights, there is a conspicuous lack of particular investigations into the historical trends and dynamics of tax revenue collection by OGIRS.

Understanding the historical evolution of tax collection is critical for evaluating the tax system’s effectiveness and long-term contribution to economic growth.

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