The revenue-expenditure nexus in Nigeria: asymmetric cointegration approach

Authors

  • Olumuyiwa Ganiyu Yinusa
  • Olalekan Bashir Aworinde
  • Isiaq Olasunkanmi Oseni

Keywords:

State revenue, state expenditure, asymmetric cointegration, threshold autoregressive (TAR), momentum-threshold autoregressive (M-TAR), C22, C52, E62, H71, H72

Abstract

The study revisits the revenue-expenditure nexus in Nigeria using theasymmetriccointegration methods to study four hypotheses related to the revenue and­expenditure­nexus,­namely:­tax-spend,­spend-tax,­fiscal­synchronisation­and­institutional separation hypotheses for state and FCT government in Nigeria,between 1981 and 2014, using the Asymmetric Cointegration Technique. Resultsshow­the­following;­first,­the­Engle–Granger,­Gregory­and­Hansen­(1996)­and­the­Hatemi-J­(2008)­cointegration­tests­along­with­the­cointegration­tests­associated­with the TAR and MTAR models indicate there is a long-run equilibrium relation-ship between aggregate state and FCT government revenue and expenditures.Second, the M-TAR model provides evidence of asymmetries in the adjustmentprocess towards budgetary equilibrium. Third, state and FCT governmentrevenuehas­a­ statistically­significant­impact­on­state­and­local­government­expenditure­in the short run, thus supporting the tax-spend hypothesis for the state and FCTgovernment in Nigeria. In sum, the results obtained indicate that it was the stateand FCT government revenue that was driving expenditure in Nigeria.

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