Fiscal Deficit and Inflationary Trend in Nigeria
CBN ECONOMIC & FINANCIAL REVIEW, VOL. 37 N o 2
1-16
FISCAL DEFICITS AND INFLATION DYNAMICS IN NIGERIA: AN EMPIRICAL INVESTIGATION OF CAUSAL RELATIONSHIPS
Emmanuel Ating Onwioduokit Government expenditure in Nigeria has consistently exceeded revenue for most o the years beginning from 1980. This paper investigates the causal relationship f between infation andfiscal deficit in Nigeria from 1970 to 19194. It was empirically confirmed that althoughfiscal dejkit causes inflation, there was nofeedback between inflation and fiscal deficit. However the findings showed that feedback existed between inflation and fiscal deficit deflated by the GDP The Structural model of inflation revealed that, it takes about two years for the fiscal deficit to impact on inflation in Nigeria. The study concluded that what should be cfprrramount concern to policy makers as regards inflation should not so much be the level offiscal deficits but the sources of its financing as well as the absorptive capacity of the economy. Thus,policies to tame inflation should have inbuilt ability to increase the productive capacity of the economy.
e
1.
INTRODUCTION:
The growth and persistence of fiscal deficits in both the industrialized and developing countries in recent times have brought the issue of fiscal deficits into sharp focus. The issues surrounding fiscal deficits are certainly not new, but the economic development of the past decade has rekindled the interest in fiscal policy issues. In the advanced countries, the growth of United State Federal deficit provided the impetus for a reassessment of the effect of fiscal deficits on economic activities (Islam and Wetzel, 1991). In the less developed countries induding Nigeria, fiscal deficits have been blamed for much of the economic crisis that beset them in the 1980s: over indebtedness and the debt crisis; high inflation and poor investment performance; and growth. Attempts to regain stability at the macro-level through fiscal
1-16
FISCAL DEFICITS AND INFLATION DYNAMICS IN NIGERIA: AN EMPIRICAL INVESTIGATION OF CAUSAL RELATIONSHIPS
Emmanuel Ating Onwioduokit Government expenditure in Nigeria has consistently exceeded revenue for most o the years beginning from 1980. This paper investigates the causal relationship f between infation andfiscal deficit in Nigeria from 1970 to 19194. It was empirically confirmed that althoughfiscal dejkit causes inflation, there was nofeedback between inflation and fiscal deficit. However the findings showed that feedback existed between inflation and fiscal deficit deflated by the GDP The Structural model of inflation revealed that, it takes about two years for the fiscal deficit to impact on inflation in Nigeria. The study concluded that what should be cfprrramount concern to policy makers as regards inflation should not so much be the level offiscal deficits but the sources of its financing as well as the absorptive capacity of the economy. Thus,policies to tame inflation should have inbuilt ability to increase the productive capacity of the economy.
e
1.
INTRODUCTION:
The growth and persistence of fiscal deficits in both the industrialized and developing countries in recent times have brought the issue of fiscal deficits into sharp focus. The issues surrounding fiscal deficits are certainly not new, but the economic development of the past decade has rekindled the interest in fiscal policy issues. In the advanced countries, the growth of United State Federal deficit provided the impetus for a reassessment of the effect of fiscal deficits on economic activities (Islam and Wetzel, 1991). In the less developed countries induding Nigeria, fiscal deficits have been blamed for much of the economic crisis that beset them in the 1980s: over indebtedness and the debt crisis; high inflation and poor investment performance; and growth. Attempts to regain stability at the macro-level through fiscal
References: Adeyeye, E. A. and T. 0.Fakiyesi (1980):“Productivity Prices and incomes Board and Anti Inflationary Policy in Nigeria”, in the Nigerian Economy Under the Military Proceedings of the I980 Annual Conference of Nigeria Economic Society. Ibadan. (1971): “The Role of Monetary Policy” Journal of Political Economy, Chicago. Granger, C. W. J. (1969): “Investigating Causal Relationship b,yEconometric models and Gross-spectral Methods” Econometrics, vol. 37, No 3 . (1986): “Developments in the Study of Co-integrated Economic Variable’’ Oxford Bulletin o Econonzics and Statistics, vol. 48 No. 2 f (1988): ‘Some Recent concept in the Theory of‘causality” Journal o f Econometrics. vol. 39, No. 3 Heller, P.S