Tax burden and the growth of shadow economy in Nigeria: A focus on the corporate tax rate and net taxes on products

Abstract

The purpose of taxation is to raise revenue to pay for public goods. The question of how tax mix affects the size of the underground economy is one of the most important issues for its application to tax policy. However, the empirical evidence on this subject is limited and also somewhat ambiguous. Empirically, this study specifically aims to evaluate the effect of corporate tax rate and net taxes on the product on shadow economy growth in Nigeria during the period 1996–2020. It employed augmented Dickey–Fuller (ADF) and Phillips and Perron tests to check for unit roots. Thereafter, the Autoregressive Distributed Lag model was employed to determine the short- and long-run effects. The findings of this study show that corporate tax rates and net taxes on products induced much less shadow economy in the long-run while corporate tax rates have a positive impact on shadow economy in the short-run.

Keywords: Autoregressive-distributed lag model, corporate tax rate, net taxes, products, shadow economy;