Fiscal Policy Instruments and Wagner’s Hypothesis: The Nigerian Experience

Abstract

The study examines the impact of fiscal policy instruments on the Nigerian economic growth using time series annual data from 1981-2016. Data on fiscal policy instruments was proxied with government recurrent expenditure, government capital expenditure, public domestic debt, and public external debt while data on economic growth was proxied with GDP. The data were analysed through vector error correction model. The study found that recurrent expenditure exerts negative impact on economic growth while capital expenditure exerts positive impact on economic growth in Nigeria. Also, public domestic debt exerts negative impact on economic growth in the long-run while public external debt exerts positive impact in the long run on economic growth. The study concludes that Wagner’s hypothesis partially holds in Nigeria due to high level of corruption in the country. In view of this conclusion, Nigeria government should refocus and redirect government expenditure towards production of goods and services so as to develop the real sector of the economy and enhance economic growth in the country.