Cyclicality of Fiscal Policy in Nigeria (1999 – 2017)

Abstract

The study investigated the responses of State governments to change in fiscal policy between 1999 and 2017. The methodology employed in the study involves the use of Generalized Method of Moments (GMM) to estimate the cyclical fiscal policy which is a reflection of the systematic response of the fiscal balance of state governments to the regulatory quality of the institution of States. The results show that the fiscal institutions are rather weak and may actually also form part of the rent-seeking agents in the fiscal space as it engenders procylical fiscal policy at the second tier of government in Nigeria. The empirical findings of this study conclude that fiscal policy of State governments in Nigeria is highly procyclical. The study recommends active government intervention in the economy through the use of appropriate macroeconomic policies such as expansionary fiscal policy during the period of fiscal crunch and contractionary fiscal policy during the period of boom.