IDEAS home Printed from
   My bibliography  Save this article

Petroleum subsidy and its impact on tax revenue volatility


  • Matthew O. Gidigbi
  • Kehinde M. Bello
  • Gbenga F. Babarinde


Energy pricing did not only have an implication on the indigent but on the national government as well. Petroleum subsidy tolerance impacts the government revenue of certainty but the extent of its impact needs to be determined. Therefore, it becomes imperative to assess the contribution of the petroleum subsidy on tax volatility. Data were sourced from the NNPC Annual Statistical Bulletin (ASB) for the year 1997, 2005, 2008 and 2016; Central Bank of Nigeria (CBN) Statistical Bulletin and Statement of Accounts and Annual Reports. An exploratory analysis was conducted on extracted data to generate other variables of interest such as subsidy on premium motor spirit, tax revenue volatility before proceeding to Lease Squares analyses. ARCH and GARCH models were applied to ascertain the volatility of tax revenue. Petroleum subsidy positively impacts tax revenue volatility; the impact was minimal but statistically significant at 1 per cent significance level. Exchange rate increased the tax revenue volatility by 5.10 point in the long-run, likewise gross domestic savings by 0.4 point in the long-run and both estimates were statistically significant at 1 per cent respectively. Both government expenditure and gross fixed capital formation reduced the tax revenue volatility at 0.05 and 0.03 point respectively and the estimates were statistically significant at 10 per cent and 1 per cent. The ECM showed that any deviation in the estimates would be restored within a year and this is statistically significant at 1 per cent. It was therefore recommended that the government should do more to manage and maintain appropriate exchange rate policy and keep up improving on its expenditure towards capital formation and investment in order to manage tax revenue volatility.

Suggested Citation

  • Matthew O. Gidigbi & Kehinde M. Bello & Gbenga F. Babarinde, 2019. "Petroleum subsidy and its impact on tax revenue volatility," The Review of Finance and Banking, Academia de Studii Economice din Bucuresti, Romania / Facultatea de Finante, Asigurari, Banci si Burse de Valori / Catedra de Finante, vol. 11(1), pages 24-36, June.
  • Handle: RePEc:rfb:journl:v:11:y:2019:i:1:p:24-36

    Download full text from publisher

    File URL:
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    1. Ian W.H. Parry, 2002. "A Second-Best Analysis of Environmental Subsidies," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 28, pages 555-572, Edward Elgar Publishing.
    2. Brons, Martijn & Nijkamp, Peter & Pels, Eric & Rietveld, Piet, 2008. "A meta-analysis of the price elasticity of gasoline demand. A SUR approach," Energy Economics, Elsevier, vol. 30(5), pages 2105-2122, September.
    3. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    4. Gabriela Inchauste & David G. Victor, 2017. "The Political Economy of Energy Subsidy Reform," World Bank Publications - Books, The World Bank Group, number 26216, December.
    5. Sterner, Thomas, 2007. "Fuel taxes: An important instrument for climate policy," Energy Policy, Elsevier, vol. 35(6), pages 3194-3202, June.
    6. John M. Piotrowski & David Coady & Justin Tyson & Rolando Ossowski & Robert Gillingham & Shamsuddin Tareq, 2010. "Petroleum Product Subsidies; Costly, Inequitable, and On the Rise," IMF Staff Position Notes 2010/05, International Monetary Fund.
    7. Lucas W. Davis, 2017. "The Environmental Cost of Global Fuel Subsidies," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    8. John M. Piotrowski & Mr. David Coady & Justin Tyson & Mr. Rolando Ossowski & Mr. Robert Gillingham & Mr. Shamsuddin Tareq, 2010. "Petroleum Product Subsidies: Costly, Inequitable, and On the Rise," IMF Staff Position Notes 2010/005, International Monetary Fund.
    9. Christopher N. Ekong & Usenobong F. Akpan, 2014. "On Energy Subsidy Reform and Sustainable Development in Nigeria," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(4), pages 186-202.
    10. Christopher N Ekong & Usenobong F Akpan, 2014. "On Energy Subsidy Reform and Sustainable Development in Nigeria," International Journal of Management and Sustainability, Conscientia Beam, vol. 3(4), pages 186-202.
    11. Mathew Adagunodo, 2013. "Petroleum Products Pricing Reform in Nigeria: Welfare Analysis from Household Budget Survey," International Journal of Energy Economics and Policy, Econjournals, vol. 3(4), pages 459-472.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lucas W. Davis, 2017. "The Environmental Cost of Global Fuel Subsidies," The Energy Journal, International Association for Energy Economics, vol. 0(KAPSARC S).
    2. Auktor, Georgeta Vidican & Loewe, Markus, 2021. "Subsidy reforms in the Middle East and North Africa: Strategic options and their consequences for the social contract," IDOS Discussion Papers 12/2021, German Institute of Development and Sustainability (IDOS).
    3. Mr. Kangni R Kpodar & Ms. Stefania Fabrizio & Kodjovi M. Eklou, 2019. "Export Competitiveness - Fuel Price Nexus in Developing Countries: Real or False Concern?," IMF Working Papers 2019/025, International Monetary Fund.
    4. Vance, Colin & Frondel, Manuel, 2015. "From fuel taxation to efficiency standards: A wrong turn in European climate protection?," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113171, Verein für Socialpolitik / German Economic Association.
    5. Muhammad Haseeb & Irwan Shah Zainal Abidin & Qazi Muhammad Adnan Hye & Nira Hariyatie Hartani, 2019. "The Impact of Renewable Energy on Economic Well-Being of Malaysia: Fresh Evidence from Auto Regressive Distributed Lag Bound Testing Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 9(1), pages 269-275.
    6. Augusto Lopez-Claros, 2014. "Fiscal Challenges After the Global Financial Crisis: A Survey of Key Issues," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-34.
    7. Morakinyo O. Adetutu & Thomas G. Weyman-Jones, 2019. "Fuel Subsidies Versus Market Power: Is There a Countervailing Second-Best Optimum?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(4), pages 1619-1646, December.
    8. Palazzi, Rafael Baptista & Meira, Erick & Klotzle, Marcelo Cabus, 2022. "The sugar-ethanol-oil nexus in Brazil: Exploring the pass-through of international commodity prices to national fuel prices," Journal of Commodity Markets, Elsevier, vol. 28(C).
    9. Plante, Michael, 2014. "The long-run macroeconomic impacts of fuel subsidies," Journal of Development Economics, Elsevier, vol. 107(C), pages 129-143.
    10. Ciaian, Pavel & Kancs, d'Artis, 2011. "Interdependencies in the energy-bioenergy-food price systems: A cointegration analysis," Resource and Energy Economics, Elsevier, vol. 33(1), pages 326-348, January.
    11. Leonid Galchynskyi, 2020. "Estimation of the price elasticity of petroleum products’ consumption in Ukraine," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 15(2), pages 315-339, June.
    12. Hasanov, Fakhri J. & Shannak, Sa'd, 2020. "Electricity incentives for agriculture in Saudi Arabia. Is that relevant to remove them?," Energy Policy, Elsevier, vol. 144(C).
    13. Lin, Boqiang & Jiang, Zhujun, 2011. "Estimates of energy subsidies in China and impact of energy subsidy reform," Energy Economics, Elsevier, vol. 33(2), pages 273-283, March.
    14. van Beers, Cees & Strand, Jon, 2013. "Political determinants of fossil fuel pricing," Policy Research Working Paper Series 6470, The World Bank.
    15. Gaolu Zou & Kwong Wing Chau, 2020. "Effects of International Crude Oil Prices on Energy Consumption in China," Energies, MDPI, vol. 13(15), pages 1-17, July.
    16. Atalla, Tarek N. & Gasim, Anwar A. & Hunt, Lester C., 2018. "Gasoline demand, pricing policy, and social welfare in Saudi Arabia: A quantitative analysis," Energy Policy, Elsevier, vol. 114(C), pages 123-133.
    17. Marcella Nicolini & Simona Porcheri, 2014. "The energy sector in Mediterranean and MENA countries," Chapters, in: Carlo Altomonte & Massimiliano Ferrara (ed.), The Economic and Political Aftermath of the Arab Spring, chapter 6, pages 179-203, Edward Elgar Publishing.
    18. Jun E Rentschler & Nobuhiro Hosoe, 2017. "Illicit dealings: Fossil fuel subsidy reforms and the role of tax evasion and smuggling," GRIPS Discussion Papers 17-05, National Graduate Institute for Policy Studies.
    19. Ortiz, Isabel, & Cummins, Matthew. & Capaldo, Jeronim. & Karunanethy, Kalaivani., 2015. "The decade of adjustment : a review of austerity trends 2010-2020 in 187 countries," ILO Working Papers 994890453402676, International Labour Organization.
    20. Labandeira, Xavier & Labeaga, José M. & López-Otero, Xiral, 2017. "A meta-analysis on the price elasticity of energy demand," Energy Policy, Elsevier, vol. 102(C), pages 549-568.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rfb:journl:v:11:y:2019:i:1:p:24-36. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tatu Lucian (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.