Abstract
This study examined the impact of fiscal policy on economic growth in Nigeria over the period 1970 to 2019, using annual data obtained from secondary sources. Specifically, the study examines the impact of government expenditure (capital and recurrent) on Nigeria’s gross domestic product in regulated and deregulated fiscal regime. The econometric techniques of ARDL and Bound Cointegration were used to analyze the data. The results obtained from the analyses show that government capital expenditure had a significant negative relationship with economic growth in Nigeria in the deregulated period but an insignificant effect in the regulated period; while government recurrent expenditure had a significant positive relationship with economic growth in Nigeria in the deregulated period and an insignificant effect in the regulated period. The regression coefficient of the dummy variable (Regime) was positively signed and significant implying that there is a significant difference in the impact of fiscal policy across the two periods (regulation and deregulation). Thus, the study concluded that fiscal policy is more effective in the deregulated period compared the regulated period. Among the recommendations of this study are that the government should avoid extravagant capital expenditure.
Highlights
Fiscal policy is the economic term which describes the actions of a government in setting the level of public expenditure and the ways in which that expenditure is funded
The results obtained from the analyses show that government capital expenditure had a significant negative relationship with economic growth in Nigeria in the deregulated period but an insignificant effect in the regulated period; while government recurrent expenditure had a significant positive relationship with economic growth in Nigeria in the deregulated period and an insignificant effect in the regulated period
4.5 Discussion of Findings From our model one that captures the effect of fiscal policy on economic growth in a regulated fiscal regime, we observed that none of the fiscal variables (GCEX and government recurrent expenditure (GREX)) introduced in the model had a statistically significant effect on economic growth
Summary
Fiscal policy is the economic term which describes the actions of a government in setting the level of public expenditure and the ways in which that expenditure is funded. Fiscal policy is an important concept in economics since it is one of the macroeconomic management instruments used by governments at all levels to regulate the economy through their expenditure, revenue, and debt portfolios. It is concerned with the government’s management of the nation’s economy by varying the size and content of taxation and public expenditure done with much regard to their impact on the economy. Fiscal policy is concerned with the government's purposeful expenditure of money and imposition of taxes in order to influence macroeconomic variables in a desired direction It has both general and specific objectives. Increased government spending or lower taxes tend to help the economy out of a recession, whereas reduced expenditure or higher taxes tend to stifle a boom (Dornbusch and Fischer, 1990)
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