Tax Revenue and Infrastructure on Composite Health and Education Development in Nigeria: A Simulation Approach

Abstract

Insufficient allocation of resources and infrastructure remains two daunting challenges of human capital development in Nigeria despite government policy measures to efficiency of resources and infrastructure development. This paper examined the effect of tax revenue proxy by value added tax and infrastructure on composite health and education in Nigeria from the period 1980- 2021. This paper utilized the simulation approach in forecasting performance of the macroeconometric model. From the results, the following were observed: First, value added tax has positive and statiscally significan effect on government expenditure on education and health. This implies that an increase in tax revenue causes increase in government’s spending on education and health in Nigeria. Second, health is not a good channel through which tax revenue can be used to influence economic growth, relative to education. Education impacts more on human capital in Nigeria than health. Three, higher investment in infrastructure or higher infrastructure will increase economic growth and human capital development. Four, positive and significant relationship exist between value added tax revenue and government expenditure on education and health. This implies that increase in tax revenue causes increase in government spending on social and community services including health and education. Five, to increase human capital development in Nigeria, temporary tax revenue shock is sufficient. This implies that the growth reducing effect of government tax via permanent increase in value added tax revenue. Six, to increase human capital development in Nigeria, permanent infrastructure development and investment is required. From the results, the following were observed: First, value added tax has positive and statiscally significan effect on government expenditure on education and health. This implies that an increase in tax revenue causes increase in government’s spending on education and health in Nigeria. Second, health is not a good channel through which tax revenue can be used to influence economic growth, relative to education. Education impacts more on human capital in Nigeria than health. Three, higher investment in infrastructure or higher infrastructure will increase economic growth and human capital development. Four, positive and significant relationship exist between value added tax revenue and government expenditureon education and health. This implies that increase in tax revenue causes increase in government spending on social and community services including health and education. Five, to increase human capital development in Nigeria, temporary tax revenue shock is sufficient. This implies the growth reducing effect of government tax via permanent increase in value added tax revenue. Six, to increase human capital development in Nigeria, permanent infrastructure development and investment is required. The study recommended that: (i) The government should increase its investment on critical infrastructure to further bolster human capital development and by extension accelerate the rate of economic growth, (ii) The government should diversify its revenue base and expend more on health and education in addition to building a strong institutional framework to ensure the efficacy of government spending on both health and education.

Keywords: Tax revenue, infrastructure, composite health, education, simulation , Nigeria

JEL Codes: H24, I10, E27

DOI: 10.7176/JESD/14-6-04

Publication date:March 31^st 2023