Testing the Rentier State Theory: The Case of Nigeria

Open Access
Author:
Segun, Toluwanimi Abiodun
Area of Honors:
International Politics
Degree:
Bachelor of Arts
Document Type:
Thesis
Thesis Supervisors:
  • Elizabeth Claire Carlson, Thesis Supervisor
  • Matthew Richard Golder, Honors Advisor
Keywords:
  • Rentier State Theory
  • International Politics
  • Vector Autoregression
  • Taxation Effect
Abstract:
The steep and persistent oil price decline beginning in 2014 exposed the fiscal vulnerability of many rentier states, including Nigeria. One persistent contributor to this vulnerability is the neglect of tax as a source of revenue. The Rentier State Theory suggests that when states receive sufficient revenue from oil, they dampen taxation to depress demands for accountability from the public. I test this hypothesis in the Nigerian situation. I find that the tax target and direct tax revenues move in line with the tax effect hypothesis. I attempt a synergy-effect hypothesis to explain the movement of indirect taxes, however the volatility and insignificance of VAT’s response suggest weak predictive power. These results suggest that aggregated tax data are of questionable empirical application. They also establish the tax target as the preferred measure of tax policy. Future research should favor data on the tax target over others, but direct tax revenues seem to be a suitable proxy.