Analysis of Effects of Digital Financial Inclusion and Tax Revenue in Nigeria

Abstract

This study examined the effect of digital financial inclusion on tax revenue in Nigeria. It was motivated by the rapid expansion of digital financial services and the need to determine whether this growth had improved domestic revenue mobilization. The research involves analyzing time series data with a low frequency, covering the years 2000 to 2023, encompassing a dataset spanning 24years involving 96 quarterly observations on the Nigerian economy which was gathered from Nigeria Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN) bulletin. Analysis was based on the endogenous growth theory and employed the Autoregressive Distributed Lag (ARDL) model to estimate the short-run and long-run relationships among the variables. The ARDL bounds test confirmed the existence of a long-run relationship, while the error correction term indicated that about 61% of short-run disequilibrium was corrected annually. The results showed that digital financial inclusion had a negative and statistically significant effect on tax revenue in both the short and long run. It suggested that the growth of digital financial services had not translated into improved tax revenue during the study period. In contrast, foreign direct investment exerted a positive and significant effect on tax revenue. This indicated that sustained investment inflows expanded the tax base and enhanced government revenue. Diagnostic tests confirmed that the estimated model was stable, correctly specified, and econometrically robust. The study concluded that the revenue benefits of digital financial inclusion depended on stronger tax administration, improved regulatory coordination, and greater integration of digital financial platforms with the national tax system.