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.