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The Impact of Fiscal Policy Variables on Private Investment in Nigeria

Author

Listed:
  • Yusuf Abdulkarim
  • Mohamed Saidatulakmal

    (Universiti Sains Malaysia)

Abstract

Private investment in Nigeria has remained low for decades. Given that investment is a major determinant of poverty reduction and economic growth, this has caused considerable concern among policymakers. In the literature, neither taxes, government spending, nor deficits are strongly associated with private investment. The lack of association could be ascribed to any single budgetary component's inability to adequately express the fiscal policy position. To avoid serious parameter bias, this study examined the effects of fiscal policy on private investment in Nigeria using data from 1980 to 2017 and the Autoregressive Distributed Lag approach. The empirical findings demonstrated that direct taxes are distortive and stifle private investment growth, whereas indirect taxes promote it. Capital spending stimulated private investment while external debt impeded it. The study advocated for tax policy harmonization to reduce the cost of doing business, as well as lower income taxes and massive investment in critical infrastructure to attract potential investors.

Suggested Citation

  • Yusuf Abdulkarim & Mohamed Saidatulakmal, 2021. "The Impact of Fiscal Policy Variables on Private Investment in Nigeria," The African Finance Journal, Africagrowth Institute, vol. 23(1), pages 41-55.
    • Handle: RePEc:afj:journl:v:23:y:2021:i:1:p:41-55
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-finj_v23_n1_a3
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    More about this item

    Keywords

    ARDL Co-integration; Fiscal Policy; Tax revenue; Private investment; Unit Root Test;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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