Tax Policy Reforms and Income Redistribution in Nigeria: A Computable General Equilibrium Approach

Abstract

This study examines the redistributive effects of tax policy reforms on income inequality and poverty in Nigeria, a country facing persistent socio-economic disparities and fiscal challenges. Traditional approaches often fail to capture the complex interactions among tax instruments. To address this gap, the research applies a static Computable General Equilibrium (CGE) model calibrated to Nigeria’s 2018 Social Accounting Matrix, enabling an integrated analysis of value-added tax (VAT), personal income tax (PIT), and company income tax (CIT) reforms. Three reform scenarios were simulated: increasing VAT from 7.5% to 15%, enhancing PIT progressivity through higher marginal rates for top earners, and reducing CIT from 30% to 20%, partially offset by PIT adjustments to ensure revenue neutrality. Results show that VAT increases exacerbate poverty and inequality, while progressive PIT reforms significantly reduce inequality and improve welfare for lower-income households. CIT reductions alone have limited redistributive impact, but when combined with PIT adjustments, they yield modest equity gains. The findings underscore the superior redistributive potential of progressive income taxation over consumption-based taxes. This research provides empirical evidence to guide equitable tax policy design in Nigeria and contributes to broader policy debates on fiscal equity and poverty reduction.