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CHAPTER ONE

INTRODUCTION

1.1 Background of the study.

In the global economic administration, physical policy of the government considers the following things such as revenue (tax and non-tax), government expenditure, and deficit or surpluses which are the fundamental elements of physical policy of any states. The tax is major sources for a country’s income which is used to develop the economy of nation’s Ahuj (2002) &somaye (2012). The government expenditure consists of expenses which a government incurs in protecting its citizens and increasing their economic and social welfare. The expenditure incurred by the government to help other countries is also a part of the total government expenditure Khoon (1999) &Jingan (2004). Taxes in Nigeria have been, and still are an important source of government revenue and the most dependable source of governing funding. In many countries, tax relief has become significant to boost the economic growth by providing social amenities.

Taxation is an age long concept which dates back to the pre-colonial era in Nigeria. Taxes were paid through different kinds of manual labour for the entire community benefit. Some examples of such services are cleaning of bushes, digging of pit toilet, well etc for the benefit of the community as a whole, failure to render such services usually resulted in seizing of property which will be claimed only on payment of money. . In 1904, during colonial rule, late lord Lugards government introduces income tax to Nigeria and community tax was being paid in Sokoto caliphate, northern Nigerian. Adabayo (2004) defined taxation as a legal demand made by federal government or states government for its citizens to pay money on income of goods and services. Taxation policy itself is a fundamental element for economic policies, ensuring that countries are able to maintain and improve its global competitiveness and to expand. Public expenditure is spending made by government of a country in collective needs and wants such as pension and provision of infrastructure, until the 19^th century, public expenditure was limited to laissez-faire philosophy which believed that money left in private hands could bring better returns. The pattern of government expenditure in Nigeria over the years has to a large extent been driven by crude oil endowment, which is reflected in generated revenue (Akanbi, 2014). In 20^th century, Keynes argued the role of public expenditure in determining levels of income and distribution in the economy.

1.2 Statement of the Problem.

The main reason of taxation is to finance government expenditure and to redistribute wealth which translate to financing of the country 017 (2001), Jhingan (2084), Musgrave and Musgrave (2004), and Bhatia (2009). Government collects taxes in order to provide an efficient and steadily expanding non-revenue yielding services such as infrastructure facilities, education health, employment opportunities and essential public services ( such as the maintenance of law and order) irrespective of the prevailing ideology or political system of a particular nation. However, in Nigeria the contribution of tax revenue has not been encouraging, thus expectation of government are being cut short corruption, evasion, avoidance and tax haven indicators are strongly associated with low revenue Attila, Chambas, and Combes (2008) and indeed, corruption functions like a tax itself. According to Adegble and Fakile (2011) the more citizens lack knowledge or education about taxation in the economy, the greater the desire and the opportunities for tax evasion, avoidance and non- compliance with relevant tax laws. The problems of tax revenue is associated with public expenditure (spending) because if tax are not raised government will not generate revenue to provide public expenditure in form of social amenities such as hospitals, employment opportunities,etc. But, if government raise taxes and generate more revenues then it will surely help in providing more public expenditure that will benefit the citizens of the country. Given the above issues, the research study seeks to assess the relationship between tax revenue and public expenditure in Nigeria.

1.3 Research Questions

This research seeks to investigate the impact of tax revenue and public expenditure in Nigeria and therefore seek to answer the following research questions:

Does a long run relationship exist between tax revenue and public expenditure in Nigeria?
What is the causal relationship between tax revenue and public expenditure in Nigeria?

To what extent does tax revenue contribute to public expenditure in Nigeria?

1.4 Objectives of the Study.

The board objective of this study is to ascertain the impact of tax revenue and public expenditure in Nigeria. Other specific objectives include:

To determine long run relationship between tax revenue and public expenditure in Nigeria.
To investigate the causal between tax revenue and public expenditure in Nigeria.

To determine how tax revenue contribute to public expenditure in Nigeria.

1.5 Statement of Hypothesis.

The hypotheses to be tested in the course of this study include:

There is no significant long run between tax revenue and public expenditure in Nigeria.
There is no casual relationship between tax revenue and public expenditure in Nigeria.

iii. Tax revenue does not contribute significantly to public expenditure in Nigeria.

1.6 Significant of the study

The purpose of the study is to investigate the causality and relationship between on tax revenue and public expenditure in Nigeria. The government of Nigeria is undertaking policies that will promote the collection of taxes in order to provide expenditure or spending in order to promote its economic growth, this study would act as a source of information on various ways the government can expand her spending to improve the living standard of its Masses and its instruments for stabilizing the economy. It will help researchers have indepth knowledge of the role of government expenditure and tax revenue in Nigeria. In fact it will also be a source of information for other researchers in the subject area especially public finance.

1.7 Scope and limitation of the study

The scope of this study involves the analysis of the relationship between tax revenue and public expenditure in Nigeria. In order to fully capture its relationship on its economy thorough empirical investigation will be conducted with data for a period of 32years i.e 1985-2017.

1.8 Chapter organization

Chapter one contains the general introduction which provides the background to the study, statement of the problem, research questions, objectives of the study, hypothesis of the study, significant of the study, scope and limitation of the study.

Chapter two examines the works of economists on the subject matter of tax revenue and public expenditure. It also consist of introduction, conceptual framework, theoretical framework and review of empirical studies

Chapter three consist of introduction, research design, sources of data and data analysis techniques.

Chapter four consists of introduction, presentation of result, discussion of result and summary of findings.

Chapter five consist of introduction, summary, conclusion and recommendation.

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Full Project – An analysis of the relationship between tax revenue and public expenditure in Nigeria

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Full Project – An analysis of the relationship between tax revenue and public expenditure in Nigeria

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