THE IMPACT OF FISCAL POLICY ON INCOME INEQUALITY IN NIGERIA

ABSTRACT This study investigates the nexus between fiscal policy and income inequality in Nigeria from 1990 to 2024, using the Autoregressive Distributed Lag (ARDL) model and Granger causality analysis. Key fiscal variables including government economic, social, and educational expenditures, real GDP, direct tax, and poverty rate, were analyzed for their impact on the Gini coefficient. Unit root and bounds tests confirmed that the variables are I(1) and cointegrated, justifying the ARDL framework. Findings reveal that social and educational expenditures significantly reduce inequality, while economic expenditure and direct taxation either aggravate inequality or remain ineffective. Real GDP exerts only a weak equalizing effect, whereas poverty rate is consistently negatively associated with inequality. Short-run dynamics highlight the immediate inequality- reducing effects of social spending and growth, contrasted with the adverse influence of certain expenditures and taxation. Granger causality results show inequality drives adjustments in education and poverty-related spending, reflecting a reactive fiscal posture. The study concludes that targeted social and educational investments can narrow disparities, but structural inefficiencies in economic expenditure and regressive tax systems undermine equitable outcomes. It recommends redirecting economic spending toward inclusive growth, expanding social and educational investment, reforming tax administration for progressivity, and strengthening anti- poverty interventions to position fiscal policy as a driver of equity and inclusive development.