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Macroeconomic Performance and Government Fiscal Deficits - Evidence from Nigeria

Okoye, Lawrence U. and Evbuomwan, Grace O. and Modebe, Nwanneka J. and Ezeji, Felix N. (2016) Macroeconomic Performance and Government Fiscal Deficits - Evidence from Nigeria. Nigerian Journal of Management Technology & Development, 7 (2). ISSN 2006-1676

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Governments in most developing economies, including Nigeria, have often had to contend with issues of weak economic and social indicators vis-à-vis poor fiscal performance. In Nigeria for instance, there is evidence that between 1981 and 2014 fiscal operations have been dominated by fiscal deficits while major indicators of economic health have remained at sub-optimal levels. There has been considerable disagreement on the relationship between fiscal deficits and economic performance. As our contribution towards the resolution of this contentious issue, this study examines the relationship between the performance of key macroeconomic indicators (exchange rate, inflation rate, gross fixed capital formation and unemployment) and fiscal deficits. Data on the research variables covering the period 1981-2014 were sourced from the publications of the Central Bank of Nigeria (CBN) and the National Bureau of Statistics (NBS). Employing the econometric methodology of the vector error correction model (VECM), the study shows significant positive effect of gross fixed capital formation as well as significant negative impact of inflation rate and unemployment on fiscal deficits in Nigeria. Though, there is evidence of negative effect of exchange rate, the study shows it is not significant. These results imply that policies aimed at enhancing the infrastructure base of the economy promote the practice of deficit budgeting, Similarly, economic policies that tend to reduce inflation (such as raising domestic output levels) and unemployment reflect in higher fiscal deficits. The causality tests show evidence of causal impact of government fiscal deficits on exchange rate, inflation rate and unemployment but failed to show evidence of causation between fiscal deficits and gross fixed capital formation. It is recommended that government should ensure prudent utilization of the proceeds of debt finance in promoting domestic production in order to strengthen the economic fundamentals required to support improved fiscal performance in the long-run

Item Type: Article
Uncontrolled Keywords: Fiscal deficit, macroeconomic performance, fiscal operations, economic fundamentals.
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Divisions: Faculty of Law, Arts and Social Sciences > School of Social Sciences
Depositing User: Mrs Patricia Nwokealisi
Date Deposited: 15 Jun 2017 10:05
Last Modified: 29 Jun 2017 15:11

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