Value Added Tax and Household Savings in Nigeria: Evidence from Econometric Analysis (1994Q1-2026Q2)

Abstract

The study examines the impact of Value Added Tax on household saving in Nigeria using quarterly data from 1994Q1 to 2026Q2. The Vector Error Correction Model (VECM), Granger Causality, Impulse Response and Variance Decomposition techniques were employed. Findings revealed that all variables are I(1) and cointegrated, indicating a long-run relationship. The long-run result shows that a 1% increase in VAT revenue increases household savings by 0.48% and this is statistically significant. The error correction term is negative and significant, with 21.78% speed of adjustment to equilibrium. Granger Causality test shows unidirectional causality running from VAT revenue to household savings. Impulse response indicates that a positive shock to VAT revenue has a persistence positive effect on household savings. Variance decomposition reveals that VAT revenue explains 38.31% of variation in household savings by the 10^th quarter. The study concludes that VAT revenue is a significant driver of household savings in Nigeria and recommends improved VAT administration and productive use of revenue.