Public Finances and Economics Growth in Nigeria

Examining the empirical relationship between government revenues and expenditures, expenditures and economic growth is a fundamental step in understanding the behaviour of Nigerian public expenditure and the economy on the basis of Wagner's law or the Keynesian theory and Friedman (1978) or Peacock and Wiseman’s (1979) revenue-spend and spend-revenue hypotheses. The study tested for the stationarity properties of the time series public finance data of the Federal Government of Nigeria, 1979-2008 using the Augmented Dickey-Fuller (ADF) test. The Johansen's cointegration test was conducted to determine whether a group of non-stationary time series variables used for this study is cointegrated or not. The VAR-based Error Correction Model is used as test for causality. The study found that growths in both real gross domestic and government revenue causes growth in government expenditure. The Implication is that government expenditure is not employed as a fiscal instrument and the revenue growth drives the government expenditure for the study period. The volatility in oil-driven revenue profile of Nigeria requires public expenditure management reforms and the need to check the productiveness of government expenditure and diversify the revenue drive.