VALUE ADDED TAX, BUDGET DEFICIT AND ECONOMIC PERFORMANCE IN NIGERIA

This paper examines the impact of value added tax and budget deficit on economic performance in Nigeria. The main objective of this study is to examine the interrelationship among value added tax, budget deficit and economic performance proxied as gross domestic product (GDP) in Nigeria during the period under study. The study utilized aggregate annual data from 1980 to 2018. The data was analyzed with the co-integration/ VECM method. The major findings are: the test for stationary using Augmented Dickey Fuller (ADF) which showed that all the variables except budget deficit were not stationary in levels but were all stationary in first difference. The Johansen-Juselius co-integration techniques were employed in testing for long run equilibrium relationship among the variables and the results indicated that co-integrating relationship was found among the variables. The coefficient of determination reveals that about 88% of the systematic variation in the dependent variable (GDP) is explained by the five independent variables which are value added tax, budget deficit, exchange rate, consumer price index and real interest rate. Also, the vector error correction model (VECM) shows that about 22% of the discrepancy between the actual and the long run or equilibrium value in the real gross domestic product is corrected or eliminated each year. Furthermore, the result revealed that value added tax, budget deficit, and exchange rate has positive and insignificant effect on GDP in Nigeria, while consumer price index has positive and significant impact on GDP in Nigeria based on the magnitude and the level of significance of the coefficient and p-value. The result also reveals that there is long run relationship between value added tax, budget deficit and gross domestic product as evidenced by the VECM. The paper concluded that Government and policy makers should carefully study the present state of the economy and properly estimate the effects of various alternative policy measures of financing fiscal deficits. And also government should supervise the collection of VAT revenue to ensure orderly, fair and equitable dealings in the collection of VAT revenue and to forestall illegal deals by privilege insiders so as to raise the revenue as
effectively and efficiently as possible.