Persistence of fiscal deficits in Nigeria: examining the issues

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Due to a huge financing gap in many developing nations, governments use budget deficit to facilitate growth and development. However, deficit financing deepens the economic woes of these economies, leaving them in a vicious cycle of deficits. In Nigeria, for instance, fiscal deficits cause country’s bad performance and ranking both in global growth and development indicators. Thus, the use of fiscal deficit to enhance economic performance has proved to be futile and also has left bad economic consequences. Based on the econometric method of Autoregressive Distributed Lag, this study examines how selected macroeconomic indicators influence fiscal deficits in the budgetary policy of Nigeria. Historical data between 1981 and 2017 were used for the study. The study shows a significant positive effect of inflation, oil revenue, and lagged exchange rate on fiscal deficits. There is also evidence that external debt and current exchange rate decrease the level of fiscal deficits. However, the research did not prove robust evidence of fiscal deficit persistence. Government policy should target low level of inflation and exchange rate appreciation as well as the productive investment of oil revenues and economic diversification as the panacea for persistent use of fiscal deficits.

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    • Figure 1. Cumulative sum of residual test
    • Figure 2. Cumulative sum of squares residual test
    • Table 1. Unit root test
    • Table 2. Bound test result
    • Table 3. Long-run results
    • Table 4. Short-run estimates
    • Table 5. Diagnostic tests