Fiscal Policy and the Performance of Private Sector in Nigeria (1990-2019): A Vector Error Correction Investigation

Abstract

The study examines the relationship between fiscal policy and the performance of private sector in Nigeria; for the period 1990-2019. Secondary data are collected from Central Bank of Nigeria Statistical Bulletin, 2019. Four variables are employ for this study. These are Private Sector Output as proxy for performance of private sector economy and used as the dependent variable; whereas, the explanatory variables include Tax, Recurrent Expenditure and Capital Expenditure. Hypotheses are formulated and tested using time series econometric models. The result confirms that about 68% short-run adjustment speed from long-run disequilibrium. The study shows a significant relationship between capital expenditure and private sector output in Nigeria. Taxation has a significant relationship with private sector output in Nigeria. Recurrent expenditure has a significant relationship with private sector output in Nigeria. The coefficient of determination indicates that about 62% of the variations in economic growth can be explain by changes in fiscal policy variables in Nigeria. The study concludes that fiscal policy has a significant relationship with the growth and development of Nigerian economy. The study recommends that more resources should be relocated to productive sectors and increasing and sustaining a spending on the productive sectors of the economy. The study suggested that Nigerian government should put a stop to the incessant unproductive foreign borrowing, wasteful spending and uncontrolled money supply. The government should embark on specific policies aimed at achieving increased and sustainable growth and development in the economy.