Economic and Financial Review
Publisher
Central Bank of Nigeria
Keywords
Budget deficit, Macroeconomic stability, Error correction, Economic growth, Nigeria.
Abstract
This paper focuses on establishing the links between fiscal deficit and short-term changes in major macroeconomic variables like real output, interest rate, exchange rate, inflation rate and crude oil price in Nigeria. Empirical results show that the model adequately explains the behaviour of government of fiscal deficit and that while the accumulation of deficit is not at all detrimental to the economy per se, prudence should be exercised in the financing options adopted and more so the appropriate application of such funds to selffinancing projects. It is recommended that government broaden its tax-net to curb the surging borrowing as well as prevent the current fiscal challenges from cascading into a full scale fiscal crisis. Finally, budget making should not be assumed to a mere accounting exercise only, instead the process should be focused on developing both physical and human capital through a carefully thought out socio-economic development framework.
Publication Title
CBN Economic and Financial Review
Issue
1
Volume
50
Recommended Citation
Abeng, M. O. and Alehile, K. S. (2012) Macroeconomic shocks and fiscal deficit behaviour in Nigeria: a VECM approach. Economic and Financial Review, 50(1), 27-58.