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Changing Fiscal Policy Actions, Economic Growth and Inflation in Nigeria, 1980-2009

Odedoyin, Stephen (2012): Changing Fiscal Policy Actions, Economic Growth and Inflation in Nigeria, 1980-2009.

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Abstract

The study analyzed the trend of fiscal policy actions in Nigeria and investigated the rationale behind the changing fiscal policy thrust in the country as well determined the effects of fiscal policy actions on economic growth and inflation in Nigeria between 1980 and 2009. This was with a view to appraising macroeconomic performance in the light of policy formulation and implementation in Nigeria. The study variables included total expenditure, fiscal deficit (as percent of real GDP), money supply (M1), inflation and real GDP. Time series data obtained from the Central Bank of Nigeria statistical bulletins (2008, 2009) which were then decomposed into quarterly form using the quadratic sum match procedure in EViews from 1980:1 to 2009:4 were employed in the analysis and estimation. Descriptive and econometric techniques such as OLS and VAR were employed after the model for estimation was specified given necessary theoretical foundations and adaptations. The empirical results from our trend analyses revealed that total expenditure expanded dramatically while the fiscal deficit fluctuated with the highest decline in mid-1995. The money supply and real GDP also kept rising while inflation experienced swings during the course of the study period. The Chow Breakpoint test revealed that there was a structural change in fiscal policy in the country in 1986 for the F-statistic (4.0680) and the probability limit (p-value) of 0.0021 were statistically significant. Moreover, from our VAR results, we found that there was an inverse relationship between the previous year real output and current year inflation in Nigeria ( t-statistic = -1.92, p<0.05). The study concluded that the high total expenditure profile and correspondingly rising fiscal deficit for most part of the study period was due largely to policy inconsistency and high cost of governance in the country.

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