Abstract
This paper investigates the position of Nigeria within the various fiscal hypotheses (tax-spend, spend-tax, fiscal synchronization and fiscal neutrality hypotheses) using Granger Causality and Block Exogeneity Wald Test within the framework of Vector Error Correction (VEC) Model. The study established one-directional causality that runs from revenue to expenditure (Tax-Spend Hypothesis). This suggests that current government effort at increasing tax revenue is a positive development to reduce or revert the economy from fiscal deficit path. By implication the ongoing government policy towards increase tax revenue and her decision to halt fiscal leakages would sail the economy through the current fiscal crises that are motivated by global crash in the price of crude oil.
Highlights
The tax revenue and government expenditure in Nigeria attracts attention of researchers and policy makers, following the current shortage of revenues which is attributed to unprecedented fall in global oil price
The tax-spend hypothesis established in this study provides further hope to the economy, as it suggests the possibility of reduction in the budget deficit, if government intensifies efforts at increasing tax revenue
This study investigates causal relationship between revenue and expenditure using Vector Error Correction (VEC) Granger causality and block endogeneity test on Nigerian data
Summary
The tax revenue and government expenditure in Nigeria attracts attention of researchers and policy makers, following the current shortage of revenues which is attributed to unprecedented fall in global oil price. Like any other countries, the government attitudes to public policy management have significant effects on the welfare of citizens. The effect has both short and long term implications on the current and future generations, depending on the degree of withdrawal and injection to the economy through tax and expenditure respectively. The second view is the spend-tax hypothesis, which suggests that a political system determines how much to spend and makes the adjustments in tax policy and revenue sources in order to finance the government spending. If the tax-spend hypothesis is supported, budget deficits can be avoided by implementing policies that stimulate government revenue. While the understanding of the cause and effect between tax and spending would assist decision makers in the current state of the economy, it is unfortunate that, the regimes of fiscal operations (Spending and Tax nexus) in Nigeria is yet to be established within the various fiscal hypotheses
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