Causal relationship between tax structure and human development index in Nigeria

This study examined the causal relationship between tax structure and the Human Development Index (HDI) in Nigeria over the period 2006–2025. The study adopted an ex-post facto research design and utilized annual secondary time series data. Data on Company Income Tax, Customs and Excise Duties, and Petroleum Profit Tax were sourced from NGX Tax Pro Max, while data on the Human Development Index were obtained from the Nigerian Bureau of Statistics (NBS). The Autoregressive Distributed Lag (ARDL) estimation technique was employed for data analysis after establishing the stationarity properties of the variables using the Augmented Dickey-Fuller (ADF) unit root test. The ARDL Bounds Cointegration Test, Error Correction Model (ECM), and Pairwise Granger Causality Test were further conducted to determine the long-run relationship, speed of adjustment, and direction of causality among the variables. The findings revealed that Company Income Tax, Customs and Excise Duties, and Petroleum Profit Tax each maintain positive and statistically significant relationships with the Human Development Index in Nigeria. The ARDL Bounds Cointegration Test confirmed the existence of a stable long-run equilibrium relationship between tax structure and human development, while the Error Correction Model produced a negative and statistically significant error correction coefficient of -0.6814, indicating that approximately 68.14% of short-run disequilibrium is corrected within one period. Furthermore, the Pairwise Granger Causality Test revealed a unidirectional causal relationship running from Company Income Tax, Customs and Excise Duties, and Petroleum Profit Tax to the Human Development Index, with no evidence of reverse causality. The study concluded that an efficient and well-diversified tax structure significantly contributes to improving human development by strengthening government revenue and enhancing its capacity to finance critical sectors such as education, healthcare, and infrastructure. The study therefore recommended that government should strengthen corporate tax administration, modernize customs and excise duty collection systems, improve transparency and accountability in the management of petroleum tax revenues, broaden the domestic tax base, and ensure that tax revenues are efficiently allocated to programmes that directly improve human development outcomes in Nigeria.