Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach
International Journal of Business and Economics Research
Volume 4, Issue 3, June 2015, Pages: 109-120
Received: Apr. 15, 2015; Accepted: Apr. 22, 2015; Published: May 6, 2015
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Usenobong Friday Akpan, Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Akwa Ibom State, Nigeria
Johnson Akpan Atan, Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Akwa Ibom State, Nigeria
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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.
Fiscal Policy, Real Output, SVAR, Government Spending
To cite this article
Usenobong Friday Akpan, Johnson Akpan Atan, Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach, International Journal of Business and Economics Research. Vol. 4, No. 3, 2015, pp. 109-120. doi: 10.11648/j.ijber.20150403.14
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