FISCAL POLICY AND ECONOMIC DEVELOPMENT IN NIGERIA
Abstract
This study investigated the effect of fiscal policy instruments public expenditure (PBE), tax
revenue (TAX), and public borrowing (PBB) on economic development, measured by GDP
per capita, in Nigeria from 1981 to 2023. Using an ex-post facto research design and secondary
data, the analysis employed descriptive statistics, Augmented Dickey-Fuller unit root tests,
Johansen cointegration, vector error correction model (VECM), Granger causality tests, and
diagnostic checks for serial correlation, heteroscedasticity, normality, and stability. The results
confirmed that all variables are integrated of order one and exhibit long-run cointegration. In
the long run, PBE and PBB positively and significantly influence GDP (coefficients of 2.054
and 1.404, respectively), while TAX has a negative effect (-2.401). Short-run dynamics reveal
PBE negatively impacts GDP (-0.188), TAX positively (0.175), and PBB insignificantly
positively (0.091), with a -0.041error correction term indicating gradual equilibrium
adjustment. Granger causality shows unidirectional flows from GDP to PBE and TAX, PBB to
GDP, and TAX to PBB. Diagnostic tests affirm model robustness. These findings underscore
the need for strategic fiscal policies prioritizing productive investments, efficient tax systems,
and prudent debt management to foster sustainable economic development in Nigeri
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