Abstract

This study examines the relationship between government expenditure and government revenue in Nigeria, covering the period 1981 to 2019. The Johansen technique and the VECX model were employed as econometric techniques of data analysis. This study confirms the existence of a positive long-run relationship between government expenditure and government revenue and that the expenditure elasticity of revenue is greater than unity thus confirming fiscal sustainability in Nigeria. The long-run relationship between government expenditure and government revenue is further shown in this study, how it determines the nature of the impact of deficit financing (debt) on the economy, and that expenditure elasticity below unity is not desirable. Further, the result of the VECX-based granger causality revealed that the spend-revenue hypothesis of Peacock & Wiseman (1961) holds for Nigeria's economy both in the short and long runs. The federal government of Nigeria is thus advised to set targets for revenue mobilization and utilization as well as devise a way of expenditure spreading over the entire economy.

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