Empirical Analysis of the Impact of Fiscal Policy on Economic Growth of Nigeria

Abstract

This study provides empirical analysis of the impact of fiscal policy on economic growth in Nigeria. Time series data from 1986 to 2010 relevant to the study were collected from the Central Bank of Nigeria statistical bulletin, Volume 22 and the National Bureau of Statistics. The ordinary least square method of multivariate regression was utilized in analyzing the log-linearized Model. The Augmented Dickey-Fuller unit root test was employed to establish the stationarity of the variables while the General-to-Specific approach to Autoregressive Distributed Lag (ARDL) model was used for testing for the existence of long-run and short-run equilibrium conditions. The findings were that, there is evidence of long run equilibrium relationship between fiscal policy and economic growth in Nigeria during the period studied. The adjusted R 2 value of 0.6850 showed that about 68.5% of the total variation in the real GDP is explained by the independent variables included in the model. Specific fiscal policy variables that have significant and positive impact on economic growth in Nigeria are government recurrent and capital expenditures. Non-oil taxes and government total debts have no significant impact on real GDP. Only capital expenditure has short run equilibrium relationship with economic growth. It is therefore recommended that government should establish a strong fiscal responsibility and transparency system in the fiscal institutions; and tax reforms should be such that would encourage increase in investment and fight corruption. Government debts should be channelled towards provision of critical infrastructure so as to provide the enabling investment environment, while fiscal policy should be complemented with the use of effective monetary policy.

Analysis of the Impact of Fiscal Policy on Economic Growth in South Africa: VECM Approach

“…The long run estimates indicate that government tax revenue has a positive and significant long run effect on economic growth and the government gross fixed capital formation and budget deficit have a negative impact on RGDP. Finally, the results are inconsistent with Osuala and Jones (2014) who found out that budget deficit has no major impact on RGDP growth in Nigeria and at the same time in line Ocran (2009) who also established a positive association between government tax revenue and economic growth in the South African economy. The negative coefficient of ECT indicates that in the short run the system will be able to come back to equilibrium at about 80% speed of adjustment.…”

“…This generally refers to how much one dollar of tax cuts or spendingincreases translate to GDP. Furthermore, based on the literature survey, in the context of the Sub-Saharan region, majority of the literature on this issue seem to be concentrated in Nigeria, see (Omitogun and Ayinla, 2007;Appah, 2010;Adefeso, 2010;Audu, 2012;Akanni and Osinowo, 2013;Osuala and Jones, 2014). As far as South Africa is concerned, we came across with very few studies includingOcran (2009) who included both fiscal and monetary policy variables in the vector autoregression (VAR) analysis.Therefore, we seek to contribute to this research gap byemploying a similar approach used by Ocran (2009) but focuses only on the fiscal policy variables.The decisionto focus on fiscal policy rather than monetary policy is based on Masca et al (2015)who argued that around the 1990s, monetary policy approach has showed its weak points, which brought the fiscal policy into the spotlight.…”

Fiscal Operations and Macroeconomic Growth: The Nigerian Experience

“…The structure, efficiency and effectiveness of public spending impact upon the ability of government to create a conducive business environment, deliver developmental goods and achieve national prosperity (Matthew, 2011;Alex and Ebieri, 2014). In particular, the adequacy and quality of public goods such as infrastructure, utilities and related services largely depend on the nature and quality of public spending.…”

“…It is interesting to express that Nigeria over the period has suffered an enormous external shock heighten by inappropriate policy choices hence, has amplified the level and macroeconomic effects of instability in the marketdriven economy (Baunsgaard, 2003). Therefore, fiscal reforms at all levels of government are necessary with the view to cloud public finance from externally induced shocks, in order to maintain stable and investment-friendly economic agents with expectations of a predictable economic environment (Alex and Ebieri, 2014).…”

“…The resultant effect, therefore, was inappropriate government expenditure, poor tax policies and large fiscal deficits. In addition, Rena (2011) noted that fiscal governance is strong only when the government can deliver its fiscal policy in a sustainable way and are efficiently applied to the provision of public goods and services. Moreover, one of the possible reasons for the failure of fiscal operations in both developed and developing countries is how it is employed.…”