Endogenous Growth, Public Capital, and the Long-Run Fiscal Dividend of Tax Reform in Nigeria

This doctoral study develops and empirically tests an endogenous growth model incorporating public capital externalities to estimate the long-run fiscal dividend of tax reform in Nigeria. Conventional analyses of tax reform focus on short-run revenue impacts and static efficiency costs, underweighting the long-run growth and revenue feedback effects that arise when tax reform enables better-quality public capital investment. Building on the Barro and Romer endogenous growth frameworks, this research constructs a model in which government tax revenue finances productive public capital, which enters the private sector production function as an externality, generating long-run growth and expanding the future tax base. The model is calibrated and estimated using Bayesian methods applied to Nigerian macroeconomic data from 1980 to 2024, including capital expenditure quality-adjusted using World Bank infrastructure performance data. Simulation exercises compare long-run GDP and revenue trajectories under alternative tax reform scenarios: a VAT base broadening scenario, a CIT rate reduction combined with base broadening scenario, and a property tax expansion scenario. The study expects to find that tax reforms increasing the revenue productivity of public investment generate fiscal dividends that more than offset the transitional revenue costs within a ten-year horizon, with the VAT broadening scenario showing the highest cumulative fiscal dividend. Theoretical contributions include deriving the tax reform fiscal dividend theorem for oil-dependent economies. Keywords: endogenous growth, public capital, fiscal dividend, tax reform, Bayesian estimation.