Government Expenditure and Selected Macroeconomic Variables in Nigeria: A Bayesian VAR Approach

Abstract

The scale of the public sector continues to rise on a daily basis, and one wonders whether this expansion is accompanied by an increase in output growth. There are two strong but contradictory perspectives in the literature on government expenditure: on the one hand, government expenditure is a significant policy instrument for ensuring that economic activity is carried out at a suitable level and that cyclical short-term changes in aggregate expenditure are accurate; on the other hand, excessive government participation in economic activities disrupts and distorts the activities of other economic activities. From 1986 through 2020, this study used Bayesian Vector Autoregressive to investigate the impact of government expenditure on macroeconomic variables in Nigeria. Empirical results indicated that the shock from recurrent expenditure has a substantial influence on economic growth and has a long-term effect, but government capital expenditure has a little impact on economic growth and has no beneficial impact. As a result, it was advised that the government begin to exercise some control in its use of capital spending since it had the potential to aggravate economic circumstances