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Institutions and Sustainable Fiscal Management: Empirical Evidence from Nigeria

Institutions and Sustainable Fiscal Management: Empirical Evidence from Nigeria

 

Abstract: This study examines institutions and sustainable fiscal management in Nigeria for the period 1970-2011. In view of the proliferation of investigation techniques in the empirical literature due to the multi- dimensional nature of fiscal sustainability, we employed a series of tests such as descriptive statistics, threshold parameters, unit-root and co- integration tests to ascertain whether fiscal sustainability holds in Nigeria, and later employed the Granger causality test and the ordinary least squares technique to evaluate the relationship among institutional factors and fiscal sustainability indicators. The results show that fiscal policy is both strongly and weakly unsustainable in Nigeria. Although sustainability is attained between capital expenditure and government revenue, government has to contend with liquidity problems since the growth of capital expenditure is higher than that of revenue. Furthermore, policy changes and structural breaks impact significantly on fiscal policies in Nigeria because throughout the period of investigation, the fiscal operations of government remained cyclically intoned with changing policies and regimes. Despite the existence of fiscal rules as enunciated in the Fiscal Responsibility Bill (FRB) and various sections of the Constitution, poor implementation and weak institutions have been found to be strongly responsible for fiscal unsustainability in Nigeria. Therefore for fiscal policy to be sustainable in Nigeria, issues of institution must be properly addressed.

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