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Title: Empirical Investigation of the Relationship between Fiscal Policy and Economic Growth in Nigeria
Author(s): AMADI S. N. & ONYEWUCHI, Ebere Chimezie
Abstract: This study examined the relationship between fiscal policy and economic growth in Nigeria. Specifically, the effects of government expenditure, tax and public debt on gross domestic product was examined between 1981 and 2020. Annual time series data on each of the variables were collected from the Central Bank of Nigeria Statistical Bulletin and analyzed using unit root and cointegration tests alongside parsimonious error correction mechanism (ECM). The unit root test results showed that all the variables are integrated of order one which implies there is evidence difference stationary process in the variables. Evidence of cointegration among the variables was established from the Johansen test. This implies that economic growth has a long run relationship with government expenditure, tax and public debt. The parsimonious ECM showed that showed that government expenditure is growth enhancing as it contributed significantly to GDP growth during the study period. This finding highlights the significant contributions of government expenditure to economic growth in Nigeria. . It was further observed that tax and public borrowings have adverse implications on economic growth. This finding highlights the ineffectiveness of restrictive fiscal policy and deficit financing in promoting economic growth in Nigeria. The error correction coefficient (0.2668) is negative and significant at 5 percent level, which indicates that the model can adjusts to long run equilibrium position at a speed of 26.68 percent. Based on the findings, this study recommends that government should expand its expenditure with a focus on critical infrastructure and social services to create more opportunities for economic growth.
Keywords: Fiscal policy, government expenditure, tax, public debt and economic growth
Journal: Economic and Social Science Review (ESR)

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