Rethinking the effectiveness of fiscal allocation strategy: A focus on economic development in Nigeria

Abstract

This paper developed and estimated two autoregressive distributed lag (ARDL) models to explore the empirical relationship between fiscal policy allocation strategies and economic development in Nigeria. Specifically, the impacts of public expenditures on social and community services, economic services and administration on poverty headcount and income inequality were examined between 1990 and 2017. The unit root test results show that the variables are mixed integrated.  The ARDL bounds test results revealed that long run relationship exists among the variables in each of the models. The ARDL estimates reveal that public capital expenditure on economic services in addition to expenditure on social and economic services have significant positive impact on poverty headcount in the short run. The result further indicates that expenditure on administration negatively influenced the poverty level. More so, expenditure on economic services and income inequality are relatively related in the short run while public expenditure on social and community services play significant in reducing income inequality in both short and long run. Therefore, it is recommended that fiscal policy allocation should made adequate provision for investments in social and economic services in order to create better opportunities for everyone in a view to reducing the income divide within the Nigerian economy.

Keywords: ARDL and Nigeria, Fiscal Policy, Income Inequality, Poverty, public investments


Article Review Status: Published

Pages: 37-50 (Download PDF)

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