Fiscal Policy and Inflation in Nigeria

Abstract

This paper empirically examined the impact of fiscal policy on inflation in Nigeria. Time series data on inflation, government revenue, government expenditure, and gross domestic product were sourced from the Central Bank of Nigeria (CBN). The aforementioned secondary data cover the period from 1981 to 2021. The Augmented Dickey Fuller (ADF) unit root test and Johansen co-integration test were used to testing for data stationarity and the existence or otherwise of co-integrating equations respectively. Thereafter, data were analyzed using Ordinary Least Square and Parsimonious Error Correction techniques. Findings from the study show that government expenditure and revenue both have a positive relationship with the rate of inflation, though the latter is not statistically significant. Also, there is a positive but insignificant relationship between inflation and gross domestic product. In line with the above findings, we, therefore, recommend that the Nigerian government at all levels (local, state, and federal) should be tactful in the use of fiscal policy tools to avoid triggering inflationary pressure and its negative multiplier effects on the welfare of its citizenry.