Modelling the determinants of government expenditure in Nigeria

In Nigeria, the government activities vis-à-vis public expenditure has grown rapidly both in absolute, relative and as a share of GDP over the years. These growths in government expenditure have been due to certain factors which are believed to have significant effect on the fiscal operation of the country. These perceived implications of government expenditure expansion on the economy necessitate the need to understand factors that are responsible for the growth in government expenditure size. For that, the study employs a slightly modified version of Wagner’s law by incorporating new variables such as oil revenue, trade openness, public debt, exchange rate, oil price, taxation and inflation—to examine their effect on government expenditure size. The study uses time series data for Nigeria spanning between 1970 and 2017. Time series data were analysed using Autoregressive Distributed Lag (ARDL) model. The findings of the study reveal that oil revenue, GDP, population, trade openness, oil price, taxation and inflation are important determinants of the size of Nigeria’s government expenditure. The study recommends among others that the revenue base of the country should be diversified beyond oil sector, strengthening of fiscal and monetary policies to ensure stability in price level and exchange rate, the use of fiscal rule through excess crude oil account should also be strengthened to create buffer against fluctuation in oil price and as well appropriate population reduction policies should be undertaken to curtail rapid population growth.