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Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach

Received: 15 April 2015     Accepted: 22 April 2015     Published: 6 May 2015
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Abstract

This paper investigates the macroeconomic effects of fiscal policy shock in Nigeria using a Structural Vector Autoregressive (SVAR) framework on quarterly data for the period 1980:1-2010:4. From the empirical findings, the responses of real output and inflation may be asymmetrical depending on the component of government spending used as a fiscal stimulus to stabilized the economy. Basically, a positive shock to government capital spending on social and community services was found to have a persistent positive and significant impact on private consumption and real output but at the cost of higher inflation in the short term. A positive shock to oil revenue yield a significant positive impact on real output through its impact on public spending. In line with theory, the response of real output to innovations in business taxes is persistently negative, though insignificant. Private investment decisions in Nigeria does not seem to depend on the taxes paid to government, but on the cost of capital (interest rate) and perhaps on other crucial variables like market demand and profit expectations. The entire analysis clearly supports the argument that for the Nigerian experience, government is still relevant in stimulating real output through expenditure expansion on productive activities.

Published in International Journal of Business and Economics Research (Volume 4, Issue 3)
DOI 10.11648/j.ijber.20150403.14
Page(s) 109-120
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2015. Published by Science Publishing Group

Keywords

Fiscal Policy, Real Output, SVAR, Government Spending

References
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[2] Barro, R.J., 2009. Government Spending is no Free Lunch. Wall Street Journal, 22.
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[10] Edelberg, W., M. Eichenbaum and J. D. M. Fisher, 1998. Understanding the Effects of a Shock to Government Purchases. NBER Working Paper. No. 6737
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  • APA Style

    Usenobong Friday Akpan, Johnson Akpan Atan. (2015). Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach. International Journal of Business and Economics Research, 4(3), 109-120. https://doi.org/10.11648/j.ijber.20150403.14

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    ACS Style

    Usenobong Friday Akpan; Johnson Akpan Atan. Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach. Int. J. Bus. Econ. Res. 2015, 4(3), 109-120. doi: 10.11648/j.ijber.20150403.14

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    AMA Style

    Usenobong Friday Akpan, Johnson Akpan Atan. Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach. Int J Bus Econ Res. 2015;4(3):109-120. doi: 10.11648/j.ijber.20150403.14

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  • @article{10.11648/j.ijber.20150403.14,
      author = {Usenobong Friday Akpan and Johnson Akpan Atan},
      title = {Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach},
      journal = {International Journal of Business and Economics Research},
      volume = {4},
      number = {3},
      pages = {109-120},
      doi = {10.11648/j.ijber.20150403.14},
      url = {https://doi.org/10.11648/j.ijber.20150403.14},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20150403.14},
      abstract = {This paper investigates the macroeconomic effects of fiscal policy shock in Nigeria using a Structural Vector Autoregressive (SVAR) framework on quarterly data for the period 1980:1-2010:4. From the empirical findings, the responses of real output and inflation may be asymmetrical depending on the component of government spending used as a fiscal stimulus to stabilized the economy. Basically, a positive shock to government capital spending on social and community services was found to have a persistent positive and significant impact on private consumption and real output but at the cost of higher inflation in the short term. A positive shock to oil revenue yield a significant positive impact on real output through its impact on public spending. In line with theory, the response of real output to innovations in business taxes is persistently negative, though insignificant. Private investment decisions in Nigeria does not seem to depend on the taxes paid to government, but on the cost of capital (interest rate) and perhaps on other crucial variables like market demand and profit expectations. The entire analysis clearly supports the argument that for the Nigerian experience, government is still relevant in stimulating real output through expenditure expansion on productive activities.},
     year = {2015}
    }
    

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    AB  - This paper investigates the macroeconomic effects of fiscal policy shock in Nigeria using a Structural Vector Autoregressive (SVAR) framework on quarterly data for the period 1980:1-2010:4. From the empirical findings, the responses of real output and inflation may be asymmetrical depending on the component of government spending used as a fiscal stimulus to stabilized the economy. Basically, a positive shock to government capital spending on social and community services was found to have a persistent positive and significant impact on private consumption and real output but at the cost of higher inflation in the short term. A positive shock to oil revenue yield a significant positive impact on real output through its impact on public spending. In line with theory, the response of real output to innovations in business taxes is persistently negative, though insignificant. Private investment decisions in Nigeria does not seem to depend on the taxes paid to government, but on the cost of capital (interest rate) and perhaps on other crucial variables like market demand and profit expectations. The entire analysis clearly supports the argument that for the Nigerian experience, government is still relevant in stimulating real output through expenditure expansion on productive activities.
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Author Information
  • Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Akwa Ibom State, Nigeria

  • Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Akwa Ibom State, Nigeria

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