The Political Economy of Taxation, Fiscal Social Contract, and State Capacity Building in Nigeria

This study develops and tests a political economy of taxation framework that links tax compliance behavior, the fiscal social contract, and state capacity development in Nigeria, providing a theoretically grounded and empirically rich contribution to the political accounting and public finance literatures. Traditional tax compliance models emphasize deterrence and economic incentives, but increasingly scholars argue that taxpayers' compliance decisions are deeply embedded in their perceptions of government legitimacy, service delivery quality, and the reciprocal obligations of the fiscal social contract. In Nigeria, where the informal economy is large, tax morale is fragile, and government service delivery is widely perceived as inadequate, this social contract framing is particularly salient. This study employs a nationally representative survey of 1,200 individual and corporate taxpayers across all six geopolitical zones, supplemented by 40 key informant interviews with tax administrators, policy economists, and civil society actors. Tax compliance motivation is decomposed into intrinsic moral motivation, social norm compliance, and deterrence-driven compliance using structural model estimation. Fiscal social contract quality is assessed using perceived service delivery fairness, corruption perceptions, and government accountability indicators. State capacity is measured through tax effort ratios, administrative cost efficiency, and audit coverage rates. Structural equation modeling with multi-group zonal analysis is applied. Results establish that fiscal social contract quality is the dominant determinant of intrinsic tax compliance motivation, which in turn drives voluntary tax effort. The study contributes an original Nigerian Fiscal Social Contract Model and recommends linking tax expenditure to visible, citizen-verifiable service delivery to rebuild the compliance compact.

Keywords: political economy, taxation, fiscal social contract, state capacity, Nigeria.