Impact of Fiscal Policy on Inflation in Nigerian Economy

The implications of fiscal deficits on key macroeconomic variables have led to a large body of literature examining the question of whether economies with large and persistent fiscal deficits have high inflation rate. In line with this argument, this research work examines the long-run relationship between fiscal deficit and inflation in Nigeria using Autoregressive distributed lag (ARDL) approach to cointegration on a time series data spanning from 1970 to 2011. It further examines the nature and direction of causality between the two variables. The ARDL result reveals that there is insignificant long run relationship between fiscal deficit and inflation. There is also no significant relationship between exchange rate depreciation and inflation. However, there is a positive and significant long-run relationship between interest rate and inflation. On the direction of causality, uni-directional causalities running from fiscal deficit to inflation and also from inflation to interest rates were evident, while no causality between inflation and exchange rates was recorded. The study therefore, concludes that the sustained fiscal deficit maintained over the years is not the cause of inflation. Rather, interest rate is the main cause of inflation, as such policies targeted at inflation control could be best achieved if geared towards reducing interest rate.

Academic Journal of Economic Studies, 2019

The study is aimed at investigating the short-run and long-run dynamic effects of fiscal deficit on inflation in Nigeria. Autoregressive Distributed Lag Model (ARDL) was applied to time series data from 1970–2016 (of Nigeria). The result, of the estimation, reveals that fiscal deficit is inflationary during the short-run as well as the long-run of the period of study. Findings of the research are limited to Nigeria whose data were used, based on ARDL as the econometrics techniques applied, for a period 1970–2016. The fiscal spending of Nigerian government is one of the factors contributing to inflationary pressure in the country as seen in the findings of the research. The paper was able to prove empirically, the existence of the positive effect of fiscal deficit on inflation in Nigeria, using Nigerian data and also suggest for decision makers in the country to be cautious in terms of the way, the Nigerian government is financing its expenditure through borrowing and fiscal spending.

International Journal of Academic Accounting, Finance & Management Research(IJAAF), 2023

The broad objective of this study was to investigate the effects of fiscal deficit on inflation in Nigeria using annual time series data from 1981 to 2019. The specific objectives include, to examine the short run effect of fiscal deficit on inflation in Nigeria; examine the long run effect of fiscal deficit on inflation in Nigeria; and ascertain the nature and direction of the causal relationship between fiscal deficit and inflation in Nigeria. The Autoregressive distributed lag (ARDL) and cointegration bound test estimation technique was adopted for the study. The ARDL results reveal that there is a significant and negative long run relationship between fiscal deficit and inflation. There is also a significant and positive relationship between exchange rate and inflation in the long run. However, there was an insignificant long-run relationship between money supply and inflation. On the direction of causality, unidirectional causality running from fiscal deficit to inflation was recorded. The study, therefore, concluded that chronic deficit spending over time is the root cause of inflation in Nigeria. As a result, the answer to Nigeria's price instability falls under the scope of the fiscal policy framework, as such policies targeted at inflation control could be best achieved if geared towards controlling budget deficit and exchange rate in Nigeria. The study therefore recommended a sustained budget deficit in order to provide the infrastructure needed to harness untapped and underutilized human and material resources.

Asian Journal of Economics, Business and Accounting

Aims: This study aims to analyze how Nigerian government activities impact inflation, considering the inadequacy of monetary policy. It focuses on recurrent and capital expenditures in various sectors and their influence on inflation, as well as public debt and tax revenue's role in inflation dynamics. Study Design: The study employed secondary data. Place and Duration of Study: Data sources include the National Bureau of Statistics (NBS), Central Bank of Nigeria (CBN) statistical bulletin, Debt Management Office (DMO), and World Development Indicators (WDI) spanning from 1986 to 2021 Methodology: The study employs econometric techniques, including unit root tests and Autoregressive Distributive Lag (ARDL) analysis, with Inflation Rate (IFL) as the dependent variable. Independent variables representing fiscal policy include capital expenditure on transfers (CTRA), recurrent expenditure on administration (RADM), recurrent spending on social and community services (RSCS), recurre...

This research work examined the long run relationship between fiscal deficit and inflation in Nigeria as well as the effect of fiscal deficit on inflation covering a time frame of 1981 to 2015. Data sourced from Central Bank of Nigeria statistical bulletin were diagnosed for heteroskedasticity, serial correlation, Ramsey Reset and multicollinearity. We exercised econometric tools such as unit root, Johansen co-integration, Granger causality and Vector Error Correction Model to achieve the aim of the study. Johansen co-integration established that there is a long run relationship between fiscal deficit and inflation in Nigeria as evidenced on the trace and maximum eigenvalue depiction of two co-integration equation each at 5% level of significance. The granger causality impact assessment result showed fiscal deficit does not significantly influence inflation in Nigeria. In view of the fact that fiscal deficit does not play down inflationary trend in Nigeria, this study recommends that deficit financing by government should be discontinued with and reduction in fiscal deficit capable of keeping government spending at sustainable limits be upheld.

The study set out to ascertain the influence of fiscal policy on unemployment and inflationreduction in Nigeria. The dependent variables wereunemployment rate and inflationrate while federal government capital expenditure, petroleum profit tax, company income tax and custom and excise duty were the independent variables. Data was sourced from Central Bank of Nigeria Statistical Bulletin (2014); World Development Indicator (2013); IMF World Economic Outlook (2013) amongst others.The study employed Autoregressive Distributed Lag (ARDL) bounds testing which is based on the estimation of an Unrestricted Error Correction Model. The findings revealed the following among others: federal government capital expenditure (a tool of fiscal policy) in the first and second year does not reduce unemployment rate but it does significantly in the third year. Petroleum profit tax and company income tax do not significantly reduce inflation but only custom and excise duty did. The joint effect of all the tax variables was significant in inflation control. On this basis, the following recommendations were made among others: there is the need for massive capital expenditure in productive ventures in Nigeria, especially on agriculture; effective tax design is imperative so as to capture every individual in Nigeria.

Saudi Journal of Business and Management Studies

The aim of this study is to examine the relationship between fiscal policy and economic growth in which past studies have not fully explored in Nigeria. Data was collected from the Central Bank of Nigeria Statistical Bulletin from 1990 to 2017 and the study employed the Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) to address its objective. Consequently, the major findings that originated from the work could be submitted as follows. The result of ECM term confirmed that about 39% of the total disequilibrium in the previous year would be corrected in the current year. Therefore, it will take about two (2) years for the system to adjust back to its long run equilibrium path. Meanwhile, the estimated result shows that economic growth and government revenue have a significant positive relationship in Nigeria in the short run but the relationship becomes negative in the long run. However, recurrent expenditure has a significant negative relationship with economic growth in the short run but the relationship becomes insignificant in the long run. However, inflation rate has a significant positive relationship with economic growth in both short run and long run. Due to the findings that originated in this study, this paper makes the following recommendations for the policy makers in Nigeria that if the economic growth is the target of the policy makers, manipulating fiscal policy variables such as government revenue, capital expenditure and inflation rate appropriately will increase economic growth in the short run and the long run.

The relationship between fiscal deficits and inflation has provoked considerable interest in the macroeconomics literature. While the theory postulates that fiscal deficits lead to inflation, empirical research has been less conclusive about the relationship. This paper reexamines the issue in the context of a developing country, Nigeria, using data over 1970-2006, a period of persistent inflationary trends. We adopted a modeling approach that incorporates cointegration techniques and structural analysis. The results reveal a positive but insignificant relationship between inflation and fiscal deficits in Nigeria. We did not also find any strong evidence linking past levels of fiscal deficits with inflation in Nigeria during the period. Rather, we report a positive long run relationship between money supply and inflation in the Nigerian economy, suggesting that money supply is procyclical and tends to grow at a faster rate than inflation rate.

Journal of Public Administration, Finance and Law

This has worsened fiscal sustainability resulting in high rate of deficits and severe inflationary pressure. In this study, we examined the relationship between monetary inflation and fiscal spending in Nigeria using time series data from 1981 to 2016. Following ex post facto research design, we employ Least Squares (LS) technique in the estimation while line graph, normality test, correlation analysis were used in the preliminary analysis. Data for the model in which inflation was made a function of government recurrent expenditure, government capital expenditure and interest rate were collected Central Bank of Nigeria (CBN) Statistical Bulletin. The findings indicates that government capital spending (=-0.778665, t=-10.1298, p<0.05) exert a significant negative effect on monetary inflation in Nigeria, money supply (=1.556819, t=2.7021, p<0.10) exert a significant positive effect on monetary inflation in Nigeria. However, government recurrent spending (=-1.0005, t=-0.1970, p<0.10) exerts no effect on monetary inflation in Nigeria. The result suggests that inflation do not grow with the growth in fiscal spending a results which implies that government fiscal spending has not reach a level that it can stimulate inflation and that, inflation is indeed monetary phenomena in the country. Therefore, government needs to discourage all non-productive expenditures since fiscal spending has been shown to be ineffective neither in raising aggregate demand nor stimulating inflation. Also, contractionary monetary policy as well as economic diversification and import reduction policies that can bring about stable inflation rate should be revitalised.

World Journal of Advanced Research and Reviews

The study investigated the impact of public expenditure on inflation rate in Nigeria. Time series data spanning from 1981 to 2021 was sourced from the Central Bank of Nigeria statistical bulletin. The ARDL bounds testing approach to co-integration was used to analyse the data. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were utilized to address the main objectives of the study. The estimated short run coefficient result revealed that one period lag of CAP has a negative and insignificant impact on inflation rate. The speed of adjustment for correcting disequilibrium from the previous year to equilibrium in current year is 19.7 percent as shown by the coefficient of ECM. The long run result showed that capital expenditure has no impact on inflation rate while recurrent expenditure has a positive and significant impact on inflation rate. The result also showed that debt servicing has a positive and insignificant impact on inflation rate. Based on these...