FISCAL DEFICIT IN AN OIL DEPENDENT REVENUE COUNTRY AND SELECTED MACROECONOMIC VARIABLES: A TIME SERIES ANALYSIS FROM NIGERIA (1981-2015)

Paschal Chikwado Nwakobi, Felix Nwaolisa Echekoba, Amalachukwu Chijindu Ananwude

Abstract


In this paper, we determined the effect of fiscal deficit on selected macroeconomic variables in Nigeria by specifically evaluating the effect of fiscal deficit on gross domestic product, money supply and inflation. To achieve these objectives, we employed various econometric techniques such as unit root test, Johansen co-integration, granger causality test in which variations in gross domestic product, money supply and inflation were regressed on fiscal deficit and exchange rate using time series data from 1981 to 2015. Secondary data casing the time frame were collected from Central Bank of Nigeria statistical bulletin. The result of the analysis revealed that fiscal deficit has no significant effect on gross domestic product, money supply and inflation in Nigeria. The finding also shows that there is a positive insignificant relationship between fiscal deficit and gross domestic product. This is in line with the Keynesian postulation of the existence of positive relationship between fiscal deficit and macroeconomic variables. Based on the findings, government should allocate and effectively monitor funds sourced as a result of fiscal deficit to providing critical economic infrastructures such as electricity, access road, health, communication among others to reap the benefits associated with fiscal deficit. Monetary policy should be structured in such a way as to compliment fiscal policy so that the level of inflation would be lowered whenever government relies majorly on fiscal deficit as an instrument of fiscal policy.

 

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fiscal deficit; gross domestic product; money supply; inflation

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