Tax revenue structure and its effect on economic growth | Abstract
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Tax revenue structure and its effect on economic growth

Author(s): Sackey, Jacob Acquah and Ejoh, Ndifon Ojong

Over the years, there have been many arguments on the impact of the government at the grass root. People
generally complain about failure of government to provide necessary social amenities and infrastructures in the
rural areas. There is need therefore to empirically evaluate the nature of influence tax revenue wields on the grass
root economy. This, of course, would assist in establishing the type of tax, from the tax structure, that makes most
contribution to the growth of the grassroots economy. This research was carried out to evaluate ‘Tax Revenue
Structure and its Effect on Economic Growth’ on the third tier of government in Nigeria using Calabar Municipal
Council as the case study. The study was to determine the impact of revenue structures on economic growth and the
dynamics (stability) of the various tax revenue transfers (statutory allocations) to the local government council
covering a period of 23 years (1980 to 2002). The main objective of the study was to ascertain the responsiveness of
economic growth (GDP) in relation to the various tax revenues accruing to the local government council and how
economic growth generates increase in revenue transfers to the municipal council. Secondary data were used for the
study. The data collected from secondary source was analyzed using the ordinary least square method to evaluate
the impact of tax revenue structures (income variables from the federal, state and local government) on economic
growth (GDP). The emerging results, established that increase in revenue from the federal and state government
would exert positive effect on the Gross Domestic Product (GDP), whilst increase in internally generated revenue
resulted in decline in the GDP. The study ended by making some recommendations thus: Local Governments should
mobilize more revenue within their domain to enhance the economic growth at the rural level. The three tiers of
government should discourage any fiscal policy that could cause a decline in revenue generation and allocation.
Given that tax is a two edged sword it will also help in discouraging further implementation of any tax policy that
has a negative effect on the economic growth of the rural area in particular and the whole country generally.