Determinants of the Size of Public Expenditure in Nigeria

Ezebuilo Romanus Ukwueze

doi:10.1177/2158244015621346

Abstract

Analysis of public expenditure constitutes a central issue in public sector economics and public finance literature. Understanding the reasons for government spending growth has been a central concern of public sector economists. This is due to the fact that most economies of the world have consistently had increased government expenditures. Nigeria is not an exception. There is need to ascertain the determinants of size of government expenditure in Nigeria. Short-Run Error Correction Model and long-run static equation were used for comparing the influence of those variables on the size of government spending. The long-run static equation served as a test to compare short-run dynamics with the long-run relationships. Ordinary least squares (OLS estimation technique was used. The stationarity tests showed that none of the variables was stationary at level form, but only after their first difference. The results of this study show that the size of revenue and growth rate of national income (output) and private investment significantly influence the size of public expenditure both in the short run and long run. External and domestic debts significantly influence the size of government expenditure only in the short run. It is recommended that the revenue base should be expanded; conducive environment should be created for private investment to thrive, and debt accumulation should be reduced and used for stabilization only in the short run. The conclusion to draw from this study is that revenue, private investment, and income boost public spending while public debts might be counterproductive.

Highlights

Analysis of public expenditure constitutes a central issue in public sector economics and public finance literature
The results further suggest that, controlling for a range of economic variables, high public sector union membership, the absence of right to work laws, and strong collective bargaining rights are significantly associated with an increase in the perceived risk of the state and that the right to strike did not have any meaningful association with state bond yields
The results of the Error Correction analysis for the determinants of the size of the public sector show that some variables are significant in the short run while others are significant in the long run

Summary

Introduction

Analysis of public expenditure constitutes a central issue in public sector economics and public finance literature. The categories of public capital spending, which include expenditure on research, roads and transport, water and power projects, education and health, increase productivity of the private sector and automatically spur the growth and development of an economy.

Results

Conclusion