Convergence of Fiscal Policy and Economic Growth in Nigeria
Abstract
This study investigates the convergence relationship between fiscal policy and economic growth in Nigeria over 38 years. Fiscal policy was captured with public expenditure, revenue, and debt, while economic growth was captured with gross domestic product. The study adopted an expo factor design and a quantitative research approach. Balanced secondary data from 1986 to 2023 were gathered through the National Bureau of Statistics and the Federal Inland Revenue Service. The collected data were subjected to statistical analysis using trend analysis, descriptive statistical analysis, and OLS regression analysis. The findings reveal that public spending significantly and positively impacts Nigeria’s economic growth. Specifically, a 1% increase in government expenditure results in an 8.62% increase in GDP, with a coefficient of 8.62 and a probability value of 0.000 (p < 0.05). This underscores the autonomous capacity of government spending to drive economic growth. Conversely, tax revenue, while positively related to GDP, has a minimal and statistically insignificant effect on economic growth (coefficient = 2.99, probability = 0.4072, p > 0.05), indicating that a 1% rise in tax revenue corresponds to a 3% increase in GDP. Furthermore, the analysis reveals that public debt exerts a negative but statistically insignificant impact on GDP, with a coefficient of -0.617 and a probability value of 0.6565 (p > 0.05), implying that a 1% rise in public debt leads to a 0.6% decline in GDP. The study concludes that government spending plays a critical role in stimulating economic growth in Nigeria, while the current contributions of tax revenue and public debt remain limited. These findings provide valuable insights for policymakers, emphasizing the need for effective fiscal strategies that prioritize productive public spending to enhance long-term economic development in Nigeria.
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