Abstract
The study investigated the impact of fiscal policy on the economic growth in Nigeria, Annual time series data were obtained from the Central Bank of Nigeria Statistical Bulletin for the period 1981 to 2018 on the variables used for the study. Unit root test was conducted using Augmented Dickey-Fuller test technique and the result showed that the variables were stationary though at different levels. Co-integration test was also conducted using Johanssen co-integration test method and the result showed that the variables in the model were co-integrated implying that the variables have a long run relationship. The vector error correction estimate of short run relationship showed that domestic debt, external debt and non-oil revenue have a positive and significant impact on economic growth while recurrent expenditure and capital expenditure have a negative and significant impact on economic growth. The vector error correction estimate of long run relationship revealed that domestic debt and external debt have a negative and insignificant impact on while recurrent expenditure has a negative and significant impact on economic growth. The result showed that capital expenditure has a negative and insignificant impact on economic growth while non-oil revenue has a positive and significant impact on economic growth. The R-squared value showed that about 80.7 percent of the total variations in the dependent variable were explained by changes in the explanatory variables. The error correction result revealed that the speed of adjustment to long run equilibrium is 23.7 percent when any past deviation must be corrected in the present period. Based on the findings, it was recommended that government should ensure greater percentage of its spending goes to the capital expenditure while smaller percentage goes to the recurrent expenditure as this will help to prove adequate infrastructure that will help in stimulating economic growth. Government should also ensure that there is full and honest implementation of the annual budget. Government should equally ensure that ensure that public debts are strictly used for the purpose for which they are meant for. Keywords: Government expenditure, Government revenue, Government borrowing, Economic growth DOI: 10.7176/EJBM/12-12-04 Publication date: April 30 th 2020
Highlights
Fiscal policy is a powerful instrument of economic stabilization
The results from the analysis revealed that total government expenditures were significantly and positively related to government revenue, with expenditures climaxing faster than revenue
The trace test indicates that there are 6 co-integrating equations at 0.05 levels while Mac-eigenvalue test indicates that there are 4 co-integrating equations at 0.05 levels. All these results showed that the variables are cointegrated, that is, Gross Domestic Product (GDP) has a long run relationship with domestic debt (DMSDT), EXTDT, recurrent expenditure (REC), capital expenditure (CAP) and non oil revenue (NR)
Summary
Fiscal policy is a powerful instrument of economic stabilization. It is the use by the government of its revenue collection (taxation), expenditure (spending) and public borrowing to influence economic activity (Dimoji, Atorudibo and Onwuneme (2013).. Okafor and Obasi (2011) defined fiscal policy as government policy measure aimed at achieving her macroeconomic objectives through its receipts and expenditure over a period usually a year. Fiscal policy is a powerful instrument of economic stabilization It is the use by the government of its revenue collection (taxation), expenditure (spending) and public borrowing to influence economic activity (Dimoji, Atorudibo and Onwuneme (2013).. Okafor and Obasi (2011) defined fiscal policy as government policy measure aimed at achieving her macroeconomic objectives through its receipts and expenditure over a period usually a year. Anyanwu and Oaikhenan (1995) see fiscal policy as that part of government policy concerning the raising of revenue through taxation and other means and deciding on the level and pattern of expenditure for the purpose of influencing economic activities or attaining some desirable macroeconomic goals. They are expansionary fiscal policy and contractionary fiscal policy. Njoku (2009) is of the opinion that the objectives of fiscal policy include: economic growth and development, healthy balance of payments, removing inequality in income distribution, protecting of infant industries, stabilization of the economy, increasing employment opportunities, stable exchange rate and increasing capital formation and investment while Jhingan (2016) argued that the objectives of fiscal policy include: to maintain and achieve full employment, to stabilize the price level, to stabilize the growth rate of the economy, to maintain equilibrium in the balance of payments and to promote the economic development of underdeveloped countries Blanchard (2009) sees defined fiscal policy as the choice of taxes and spending by the government
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