A System Analysis of Government Fiscal Operations in Nigeria

This research aims to examine the causal relationships between federal government fiscal management practices, money supply, and the general price level in Nigeria, in order to identify appropriate economic policy measures that can promote economic stability. To do this, the researchers used a sample of 41 annual time series data points, obtained as secondary data from the Central Bank of Nigeria for the period 1982-2021. They estimated a four-equation simultaneous model using the Full Information Maximum Likelihood technique, which is a systems estimation method that simultaneously estimates all the parameters of a simultaneous equation model. The model consists of four stochastic equations (for government revenue, government expenditure, money supply, and the general price level) involving four endogenous variables and six predetermined variables and is used to explain the interdependence of the endogenous variables in terms of the predetermined variables and disturbances. The findings suggest that expansionary fiscal policies, such as excessive government expenditures financed by the Central Bank, can lead to an expansion in the money supply, which in turn can cause an increase in the general price level. The general price level can also influence government fiscal management decisions. Based on these conclusions, the researchers recommend that government fiscal management practices avoid financing government expenditures through borrowing from the Central Bank in order to promote price stability.