Abstract
This paper empirically examined the effect of public expenditure on inflation in Nigeria in Nigeria from 1981 to 2018. The study adopts descriptive statistics, Co-integration and Error Correction Mechanism techniques for the analysis. The data for the empirical analysis were sourced from secondary sources like CBN Statistical Bulletin. The results of analysis indicated that a long run relationship exists among the variables. Furthermore, the paper revealed that government expenditure on transport and communication (XTCM) has a positive but insignificant relationship with inflation (CPI) at 5 percent level; government expenditure on defense (XDFS) is positive and an insignificant effect on inflation (CPI) in Nigeria; government expenditure on agriculture (XAGR) is negative and an insignificant effect on inflation (CPI) in Nigeria; government expenditure on education (XEDU) is positive and an insignificant effect on inflation (CPI) in Nigeria and government expenditure on health (XHLT) is negative and an insignificant effect on inflation (CPI) in Nigeria. Based on the above findings, the paper recommends as follows: Government should be effective in channeling public funds to productive economic activities, which will enhance price stability in Nigeria. Also, government consumption spending should be well coordinated by all arms of government to prevent “Crowd out” effect on government investment.
Highlights
Public expenditure is one of the fiscal policy measures in which government use to provide public goods such as defense, roads, education, health and power to mention a but few
According to Ezirim, Mudghalu, Elike, (2010), the relationship between public expenditure and domestic price level have been theorized by the Keynesian economics who believed in using fiscal policy in solving most of the economic problems such as inflation, stagnation and recession
The results indicate that the coefficient of the value of government expenditure on defense (XDFS) has a positive effect on inflation rate, suggesting that an increase in government expenditure on defense (XDFS) increases inflation (CPI) in Nigeria within the period under review
Summary
Public expenditure is one of the fiscal policy measures in which government use to provide public goods such as defense, roads, education, health and power to mention a but few. The study is to analyze the effect of public expenditure growth and inflation in Nigeria for the period 1981 – 2018. The study recommended that policies targeted at inflationary control in Nigeria may be most effective if they are targeted at reduction in fiscal deficits and by extension, government should support growth in the real sectors of the economy.
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