Fiscal Policy and Inflation in Nigeria (original) (raw)

Fiscal Deficits and Inflation in Nigeria

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.

An Empirical Analysis on the Relationship between Fiscal Deficit and Inflation in Nigeria

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.

Monetary Inflation and Fiscal Spending in Nigeria

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.

IMPACT OF FISCAL POLICY ON INFLATION IN NIGERIAN ECONOMY

African Journal of Economics and Sustainable Development ISSN: 2689-5080, 2023

This paper examines the impact of fiscal policy on inflation in Nigeria for the period 1981-2021. The study adopts autoregressive distributed lag (ARDL) bounds testing approach. The unit root results revealed that other variables apart from inflation were stationary after first difference. The bound test result shows that the variables cointegrate. The ARDL long-run result shows that oil revenue has a negative significant impact on inflation, while government recurrent expenditure and capital expenditure have positive impact on the inflation, with the impact of recurrent expenditure significant. The results further showed that the impacts of oil revenue, recurrent expenditure, and capital expenditure in long-run was also maintained in the short run. Lastly, exchange rate and total imports have negative impact on inflation, while foreign direct investment inflow has a positive impact on inflation in both long-and short-run. The government should review her fiscal policy to adjust recurrent and capital expenditure, and to reduce import by encouraging consumption of local products.

An Empirical Analysis of Fiscal Deficits and Inflation in Nigeria

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.

Dynamic Analysis of the Effect of Fiscal Deficit on Inflation in Nigeria

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.

The Impact of Fiscal Policy on Inflation in Nigeria

Risk Governance and Control: Financial Markets & Institutions, 2015

nflation is a major problem in Nigeria. To stabilize the economy, policy makers have often used fiscal and monetary policies to address inflation. For efficacy of policy, it is important to know the likely influence of each of these on inflation in order to properly prescribe a solution. This work attempts to see the impact of fiscal policy on inflation. This is necessary because of the current demands of the Academic Staff Union of Universities (ASUU), which is likely to increase government spending and possible inflation. Using data from the Central Bank of Nigeria spanning 32 years, the study used an ordinary least squares regression analysis, and observed that fiscal policy impacts on inflation but such impact is not significant. Therefore, government may on the basis of this study, implement the agreement it had with the Academic Staff Union of Universities without the fear of inflation.

ANALYSIS OF GOVERNMENT EXPENDITURE AND INFLATION RATES IN NIGERIA

This study empirically analysed the impact of government expenditure on inflation rates in Nigeria. The study adopts descriptive statistics, Augmented Dickey Fuller (ARDL) unit root test for stationarity, ARDL bound test for long run relationship and Autoregressive Distributed Lag (ARDL) model for the analysis. The data for the empirical analysis were sourced from CBN Statistical Bulletin and World Bank Development Indicators. The results of analysis indicated that a long run relationship exists among the variables. Furthermore, the results revealed that administrative expenditure by the government has negative and as well insignificant impact on inflation rate in Nigeria. In addition, exchange rate had negative influence on inflation rate in Nigeria. Finally, the result revealed that money supply had a positive and as well significant impact on inflation rate in Nigeria. Based on the findings, the study recommended as follows: Government needs to exercise due diligence in spending in order to check inflation rates. Furthermore, fiscal policy measures are required to be well coordinated so as to control excessive rise in the general price level in Nigeria. Finally, there is need for the government to efficiently engage monetary policy instruments that are adequate in ensuring a given level of money supply that stabilizes prices.

FISCAL DEFICIT AND INFLATION IN AN OIL RICH EXPORTING COUNTRY: EVIDENCE FROM NIGERIA

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.