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Government Revenue and Expenditure in Nigeria: A Disaggregated Analysis

Damian C. Nwosu and Harrison O. Okafor
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Damian C. Nwosu: Department of Economics, University of Ibadan, Ibadan, Nigeria.
Harrison O. Okafor: Research Division, National Institute for Legislative Studies, National Assembly, Abuja, Nigeria.

Asian Economic and Financial Review, 2014, vol. 4, issue 7, 877-892

Abstract: This paper examined the relationship between both total (TEXP) and disaggregated government expenditure (current (TREXP) and capital expenditures (TCEXP)), and total (TREV) and disaggregated revenue (oil (OILREV) and non-oil revenues (NOREV)) in Nigeria using time series data from 1970 to 2011. The study utilized co-integration techniques and VAR models which included an Error Correction Mechanism (ECM) as the methods of analyses. The Co-integration tests indicate the existence of long run equilibrium relationships between government expenditure variables and revenues variables. The VAR results also show that total government expenditure, capital and recurrent expenditures have long run unidirectional relationships with total revenue, oil and non-oil revenue variables as well as unidirectional causalities running from expenditures to revenue variables. The findings support spend-tax hypothesis in Nigeria indicating that changes in government expenditure instigate changes in government revenue. The policy implication derivable from this study is that increase in government expenditure without a corresponding increase in revenue could widen the budget deficit. Therefore, government should explore other sources of revenue especially the non oil minerals sector, and also reduce the size of large recurrent expenditure and move towards capital and other investment expenditures. Government should also consider expenditure reforms analysis vis-? -vis taxes and all other revenues sources (oil and non oil) reforms in other to help set targets for revenue mobilization and utilization as well as device a way of expenditure spreading over the entire economy.

Keywords: Government expenditure; Government revenue; Disaggregated analyses; Unit root tests; Co-integration techniques; VAR model; Error correction model. (search for similar items in EconPapers)
Date: 2014
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