The Impact of Fiscal Deficits on Economic Growth in Nigeria

Abstract

The study investigates the impact of fiscal deficits on economic growth in Nigeria in 1970 – 2009. Budget deficit arises from fiscal operations of the government. Technically, a deficit would arise whenever expenditure surpasses revenues. In Nigeria, huge fiscal deficits had been recorded over the some years. To what extent have these impacted economic growth in Nigeria? In considering this question, this paper posits that the inter play of other variables such as broad money supply along with fiscal deficits may give a better understanding of the budget deficit situation in Nigeria. The ordinary least square was carried out on the data to test the type of relationship between the variables whether positive or negative and to find out if the variables are significant or not. The finding, show that fiscal deficits positively affects economic growth in Nigeria and money supply is significant in explaining economic growth (GDP) variation in Nigeria. It is therefore recommended that government spending should be more in productive sectors of the economy and adequate monetary policy should be geared towards balancing the role money supply plays to both budget deficits and inflation.

Key words: Fiscal deficits; Economic growth; Government spending and budget deficits