TAX CAPACITY AND TAX EFFORT
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Abstract
This study examines the determinants of tax effort in Nigeria, focusing on the effect of economic development, economic structure, natural resource dependence, and institutional quality on the country's ability to mobilize domestic revenue. The research
investigates how these factors collectively influence tax performance within the framework of the Fiscal Capacity Theory, which posits that both economic fundamentals and institutional strength determine a government's revenue-generating potential. The
study adopts a survey research design. Primary data were collected from 384 respondents drawn from key fiscal and regulatory institutions, including the Federal Inland Revenue Service (FIRS), the Ministry of Finance, the Budget Office of the Federation, and the National Planning Commission. The data were analyzed using descriptive statistics, reliability tests, and Ordinary Least Squares (OLS) regression to determine the direction and significance of the relationships between the variables. The empirical findings reveal that economic development, economic structure, and institutional quality exert positive and significant effects on tax effort, indicating that higher growth, diversification, and governance quality improve revenue mobilization and compliance. Conversely, natural resource dependence has a negative and significant influence on tax effort, suggesting that overreliance on oil revenue undermines fiscal sustainability. The model recorded an R 2 ofO. 782, showing that the explanatory variables jointly account for 78.2% of the variations in tax effort. Based on these results, the study recommends that policymakers promote economic diversification, strengthen institutional quality, and reduce dependence on natural resources to enhance Nigeria's tax effort. Furthermore, reforms should prioritize transparency, accountability, and digitalization of tax administration to improve efficiency and public trust.
investigates how these factors collectively influence tax performance within the framework of the Fiscal Capacity Theory, which posits that both economic fundamentals and institutional strength determine a government's revenue-generating potential. The
study adopts a survey research design. Primary data were collected from 384 respondents drawn from key fiscal and regulatory institutions, including the Federal Inland Revenue Service (FIRS), the Ministry of Finance, the Budget Office of the Federation, and the National Planning Commission. The data were analyzed using descriptive statistics, reliability tests, and Ordinary Least Squares (OLS) regression to determine the direction and significance of the relationships between the variables. The empirical findings reveal that economic development, economic structure, and institutional quality exert positive and significant effects on tax effort, indicating that higher growth, diversification, and governance quality improve revenue mobilization and compliance. Conversely, natural resource dependence has a negative and significant influence on tax effort, suggesting that overreliance on oil revenue undermines fiscal sustainability. The model recorded an R 2 ofO. 782, showing that the explanatory variables jointly account for 78.2% of the variations in tax effort. Based on these results, the study recommends that policymakers promote economic diversification, strengthen institutional quality, and reduce dependence on natural resources to enhance Nigeria's tax effort. Furthermore, reforms should prioritize transparency, accountability, and digitalization of tax administration to improve efficiency and public trust.
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