International Journal of Business and Economics Research

| Peer-Reviewed |

Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach

Received: 15 April 2015    Accepted: 22 April 2015    Published: 06 May 2015
Views:       Downloads:

Share This Article

Abstract

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.

DOI 10.11648/j.ijber.20150403.14
Published in International Journal of Business and Economics Research (Volume 4, Issue 3, June 2015)
Page(s) 109-120
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Fiscal Policy, Real Output, SVAR, Government Spending

References
[1] Afonso, A. and R. M. Sousa, 2009. The Macroeconomic Effects of Fiscal Policy. Working Paper Series, No. 991. European Central Bank.
[2] Barro, R.J., 2009. Government Spending is no Free Lunch. Wall Street Journal, 22.
[3] Biau, O. and E. Girard, 2005. Politique Budgetaire et Dynamique Economique en France: l’approach VAR Structurel. Economie et Prevision, 169-171: 1-24.
[4] Blanchard, O. and R. Perotti, 2002. An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output. Quarterly Journal of Economics. 117 (4): 1329–1368
[5] Bracke, T. and M. Fideora, 2008. Global Liquidity Glut or Global Savings Glut? A Structural VAR Approach. European Central Bank Working Paper Series. No. 911, June.
[6] Capet, S., 2004. The Efficiency of Fiscal Policies: A Survey of the Literature. CEPII Working Paper. No. 2004-11.
[7] Chung, H. and E. M. Leeper, 2007. What has Financed Government Debt? NBER Working Paper, 13425, Cambridge, MA.
[8] De Castro, F. and P. H. De Cos., 2008. The Economic Effects of Fiscal Policy: The Case of Spain. Journal of Macroeconomics, 30: 1005-1028.
[9] Dickey, D. A. and W. A. Fuller, 1981. Likelihood Ratio Statistics for Autoregressive Time Series with Unit Root. Econometrica. 49(4): 1057-1072
[10] Edelberg, W., M. Eichenbaum and J. D. M. Fisher, 1998. Understanding the Effects of a Shock to Government Purchases. NBER Working Paper. No. 6737
[11] Edelberg, W., M. Eichenbaum and J. Fisher, 1999. Understanding the Effects of a Shock to Government Purchases. Review of Economics Dynamics, 2: 166-206.
[12] Eggertsson, G.B. and P. Krugman, 2012. Debt, Deleveraging, and the Liquidity Trap: A Fisher Minsky-Koo Approach. The Quarterly Journal of Economics, 127(3):1469-1513.
[13] Fatas, A. and I. Mihov, 2001. The Effects of Fiscal Policy on Consumption and Employment: Theory and Evidence. CEPR Discussion Papers. No. 2760, April.
[14] Favero, C., 2002. How do European Monetary and Fiscal Authorities behave? CEPR Discussion Paper Series. No. 3426
[15] Favero, C. A. and F. Giavazzi, 2007. Debt and Effects of Fiscal Policy. NBER Working Paper 12822, Cambridge, MA.
[16] Fu, D., L. Taylor and M. Yucel, 2003. Fiscal Policy and Growth. Working Paper 0301, Federal Reserve Bank of Dallas.
[17] Hemming, R., M. Kell and S. Mahfouz, 2002. The Effectiveness of Fiscal Policy in Stimulating Economic Activity – A Review of the Literature. IMF Working Paper, WP/02/208
[18] Kwiatkowski, D., P. C. B. Phillips, P. Schmidt and Y. Shin, 1992. Testing the Null-Hypothesis of Stationary against the Alternative of a Unit Root. Journal of Econometrics, 54, 159-178.
[19] Lucas, R., 1975. An Equilibrium Model of the Business Cycle. Journal of Political Economy. 83: 1113-1144.
[20] Mancellari, A., 2011. Macroeconomic Effects of Fiscal Policy in Albania: A SVAR Approach. Working Paper 05(28), Bank of Albania.
[21] Marcellino, M., 2002. Some Stylized Facts on Non-systematic Fiscal Policy in the Euro area. CEPR Working Paper Series, No. 3635.
[22] Mountford, A. and H. Uhlig, 2002. What are the Effects of Fiscal Policy Shocks? SFB 373 Discussion Paper 2002-31.
[23] Mountford, A. and H. Uhlig, 2005. What are the Effects of Fiscal Policy Shocks? SFB 649 Discussion Paper 2005-039
[24] Parkyn, O. and T. Vehbi, 2013. The Effects of Fiscal Policy in New Zealand: Evidence from a VAR Model with Debt Constraints, New Zealand Treasury Working Paper, No. 13/02, January.
[25] Perotti, R., 2002. Estimating the Effects of Fiscal Policy in OECD Countries. ECB Working Paper, No. 168.
[26] Raffaela, G., S. Momigliano, S. Neri and R. Perotti, 2008. The Effects of Fiscal Policy in Italy: Evidence from a VAR Model, Bank of Italy Working Paper, No. 656.
[27] Ramey, V. and M. Shapiro, 1998. Costly Capital Reallocation and the Effects of Government Spending, NBER Working Paper, No. 6283
[28] Ravnik, R. and I. Zilic, 2011. The Use of SVAR Analysis in Determining the Effects of Fiscal Shocks in Croatia. Financial Theory and Practice, 35 (1): 25-58.
[29] Romer, D., 2006. Advanced Macroeconomics. Irwin: McGraw-Hill
[30] Sargent, T. and N. Wallace, 1975. Rational Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule. Journal of Political Economy, 83: 241-254.
Author Information
  • Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Akwa Ibom State, Nigeria

  • Department of Economics, Faculty of Social Sciences, University of Uyo, Uyo, Akwa Ibom State, Nigeria

Cite This Article
  • APA Style

    Usenobong Friday Akpan, Johnson Akpan Atan. (2015). Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach. International Journal of Business and Economics Research, 4(3), 109-120. https://doi.org/10.11648/j.ijber.20150403.14

    Copy | Download

    ACS Style

    Usenobong Friday Akpan; Johnson Akpan Atan. Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach. Int. J. Bus. Econ. Res. 2015, 4(3), 109-120. doi: 10.11648/j.ijber.20150403.14

    Copy | Download

    AMA Style

    Usenobong Friday Akpan, Johnson Akpan Atan. Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach. Int J Bus Econ Res. 2015;4(3):109-120. doi: 10.11648/j.ijber.20150403.14

    Copy | Download

  • @article{10.11648/j.ijber.20150403.14,
      author = {Usenobong Friday Akpan and Johnson Akpan Atan},
      title = {Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach},
      journal = {International Journal of Business and Economics Research},
      volume = {4},
      number = {3},
      pages = {109-120},
      doi = {10.11648/j.ijber.20150403.14},
      url = {https://doi.org/10.11648/j.ijber.20150403.14},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijber.20150403.14},
      abstract = {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.},
     year = {2015}
    }
    

    Copy | Download

  • TY  - JOUR
    T1  - Macroeconomic Effects of Fiscal Policy Shock in Nigeria: A SVAR Approach
    AU  - Usenobong Friday Akpan
    AU  - Johnson Akpan Atan
    Y1  - 2015/05/06
    PY  - 2015
    N1  - https://doi.org/10.11648/j.ijber.20150403.14
    DO  - 10.11648/j.ijber.20150403.14
    T2  - International Journal of Business and Economics Research
    JF  - International Journal of Business and Economics Research
    JO  - International Journal of Business and Economics Research
    SP  - 109
    EP  - 120
    PB  - Science Publishing Group
    SN  - 2328-756X
    UR  - https://doi.org/10.11648/j.ijber.20150403.14
    AB  - 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.
    VL  - 4
    IS  - 3
    ER  - 

    Copy | Download

  • Sections