Economic and Financial Review
Fiscal deficits and inflation dynamics in Nigeria an empirical investigation of causal relationships
Publisher
Central Bank of Nigeria, Research Department.
Keywords
Government revenue, Government expenditure, Fiscal deficit, Inflation, Gross domestic product, GDP, Absorptive capacity, Nigerian economy
Abstract
Government expenditure in Nigeria has consistently exceeded revenue for most of the years beginning from 1980. This paper investigates the causal relationship between inflation and fiscal deficit in Nigeria from 1970 to 1994. It was empirically confirmed that although fiscal deficit causes inflation, there was no feedback between inflation and fiscal deficit. However the findings showed that feedback existed between inflation and fiscal deficit deflated by the GDP. The Structural model of inflation revealed that, it takes about two years for the fiscal deficit to impact on inflation in Nigeria. The study concluded that what should be of paramount concern -to policy makers as regards inflation should not so much be the level of fiscal deficits but the sources of its financing as well as the absorptive capacity of the economy. Thus, policies to tame inflation should have inbuilt ability to increase the productive capacity of the economy.
Issue
37
Volume
2
Recommended Citation
Onwioduokit, E. A. (1999). Fiscal deficits and inflation dynamics in Nigeria an empirical investigation of causal relationships, Economic and Financial Review, (EFR), 37(2), 1-6