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ABSTRACT
This study examines the impact of fiscal policy on economic growth in Nigeria. To address the issue of the appropriate proxy for measuring fiscal policy, three proxy variables are considered, namely: government expenditure to GDP ratio, total debt to GDP ratio and fiscal deficit ratio. A dynamic equation is specified to describe the relationship between the dependent variable RGDP and the independent variable: FPOL, RD, SAV, EDU, INST, RGDPt-1. Employing annual data, empirical analyses are conducted for the sample period 1986 to 2018 with the application of the General Method of Moment (GMM) technique. Some preliminary tests are conducted on some important variables’ data. Beginning with descriptive statistics, Augmented Dickey-Fuller Unit Root test, and test of the instrumental variables. The study produced the findings of three important models constructed for the study. Each of these model is differentiated by a unique proxy used in the GMM technique. Among the three proxies of fiscal policy in determining economic growth, the government expenditure income ratio is revealed to be the most influential proxy on economic growth. This conclusion emanates from the various empirical results, which shows that apart from being properly signed, it t-statistic value of 2.865 in relation to the others (fiscal deficit ratio t-statistic (1.675) and debt income ratio t-statistic (2.728) makes it most effective in influencing economic growth in the Nigerian context. It is thus relevant to policy makers.This research work establishes that fiscal policy can truly have an impact on economic growth in Nigeria. This conclusion which though contradicts the classical orthodoxy gives credit to the Keynesian school of thought. Hence, the study recommends that government officials, particularly those occupying the policy making class, should always consider the government expenditure income ratio variable as the first option in positively influencing the overall economic performance in Nigeria. However, the debt income ratio and the fiscal deficit ratio could serve as important alternatives.
