Abstract
The fiscal spending of the government have always been a strong instrument towards achieving development and recovering economy from recession. This paper investigates the long run and short run impact of three component of government expenditure (education, health, and consumption expenditure) on standard of living in Nigeria with time series data from 1981 to 2017. The study employs ordinary least square method of estimation on a range of equation models: Vector Error Correction Model (VECM) and the Impulse Responses Function Model. The result shows that fiscal spending on education, health, and consumption have a long run relationship with standard of living in Nigeria and the speed of adjustment towards long –run equilibrium is 61.45%, moderately high. The short run coefficient results reveals that education expenditure in both lag 1 &2 have a positive and significant impact on standard of living while health and consumption expenditure have insignificant impact on standard of living in Nigeria. Using Impulse Response Function model, we found that none of our fiscal spending variables (education expenditure, health and consumer spending) were able to emit positive impulses/shocks on the standard of living in Nigeria. The study recommends that government should ensure that fiscal spending on education, health, and consumption should be well managed, accounted for and the method should be transparent to the populace.
Highlights
Government expenditure forms the most important aspect of fiscal operation of the government and the prime objectives of the fiscal policy of any government are creating and sustaining a healthy economic growth believing that there is a positive and significant link between expenditure and economic growth
Keynes belief that the government plays a significant role in the development of a country and public sector expenditure as an important instrument for the government to control the economy was reemphasized in the areas of distribution and redistribution of income, acceleration and stability of economic growth through enhanced aggregate demand
Jhingan stated that public sector expenditure, by increasing social welfare, helps in reducing inequalities of income and wealth and as well can be used to create trade as well as to correct externalities and regional disparities if employed judiciously, thereby fastening economic growth (Iheanacho, 2016)
Summary
Government expenditure forms the most important aspect of fiscal operation of the government and the prime objectives of the fiscal policy of any government are creating and sustaining a healthy economic growth believing that there is a positive and significant link between expenditure and economic growth. The found that capital expenditure improves economic growth in Nigeria, Ubesi (2016), Gylych and Musa (2016), Chimobi (2009), Nwosa (2014), Taiwo and Abayomi (2012), Udoka and Anyingang (2015), Oni et al (2014), Okoro (2013), Cooray (2009), Emerenin and Ihugba (2014) If these numbers of researchers have found positive and significant impact/effect of government expenditure on economic growth in Nigeria, and we assume that Wagner’s Law stands, we expect the above indices to reflect positively on the standard of living of Nigerian. H2: Fiscal spending (education, health, consumption) does not emit positive impulses on Standard of living in Nigeria
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