Fiscal Policy and Economic Growth in Nigeria (1970-2005)

Adefeso, Hammed Adetola (2015-03-23)


The study evaluated the trend and composition of government tax revenue and expenditure and also determine whether non-productive government expenditure and non-distortionary taxation have had neutral effect on growth in Nigeria as predicted by theory. It examined the impact of fiscal deficit on economic growth in Nigeria. This was with a view to examining the linkage between fiscal policy and economic growth in Nigeria during the period 1970 to 2005. The study utilized secondary data. Data on economic growth, expenditures on education, health, agriculture, company income tax, custom and exercise duty and fiscal deficit were obtained from the statistical bulletin published by the Central Bank of Nigeria. The study adopted the Error Correction Mechanism (ECM) analytical techniques to measure the short run disequilibrium among cointegrated variables. The stationarity and cointegration properties of variables were also examined using Augumented Dickey Fuller test and Johansen co-integration techniques, respectively. The result showed that government expenditure (on education, health transport and communication and agriculture) had significant positive effect on growth in the short run (t=2.6; p< 0.05). The study also showed that both nondistortionary taxation and non – productive government expenditure had neutral effect on growth. The exclusion of the variable (s) did not significantly alter the result as shown by the coefficient of determination for the short run models (F-statistic =2.77 with p-value < 0.05 for model 4) and the long run models (F-statistic 434.9 with p – value < 0.05 for model 4). Fiscal deficit had a negative but not significant impact on economic growth in the long run (t=0.76; P>0.05). The study concluded that the various components of government expenditure and tax revenue (distortionary and non-distortionary) played a crucial role in determining economic growth in Nigeria.