The Impact of Fiscal Policy Variables on Private Investment in Nigeria

Yusuf Abdulkarim and Mohamed Saidatulakmal ()
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Mohamed Saidatulakmal: Universiti Sains Malaysia

The African Finance Journal, 2021, vol. 23, issue 1, 41-55

Abstract: Private investment in Nigeria has remained low for decades. Given that investment is a major determinant of poverty reduction and economic growth, this has caused considerable concern among policymakers. In the literature, neither taxes, government spending, nor deficits are strongly associated with private investment. The lack of association could be ascribed to any single budgetary component's inability to adequately express the fiscal policy position. To avoid serious parameter bias, this study examined the effects of fiscal policy on private investment in Nigeria using data from 1980 to 2017 and the Autoregressive Distributed Lag approach. The empirical findings demonstrated that direct taxes are distortive and stifle private investment growth, whereas indirect taxes promote it. Capital spending stimulated private investment while external debt impeded it. The study advocated for tax policy harmonization to reduce the cost of doing business, as well as lower income taxes and massive investment in critical infrastructure to attract potential investors.

Keywords: ARDL Co-integration; Fiscal Policy; Tax revenue; Private investment; Unit Root Test (search for similar items in EconPapers)
JEL-codes: A22 E62 F16 G18 H26 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:afj:journl:v:23:y:2021:i:1:p:41-55

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