DETERMINANTS OF FISCAL DISCIPLINE IN NIGERIA 1980-2015
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Date
2019-07-22
Authors
PERIOLA, OLOLADE
Journal Title
Journal ISSN
Volume Title
Publisher
University of Ibadan
Abstract
Fiscal Discipline (FD) is the ability of government to efficiently maintain smooth and
long-term financial operations in relation to total revenue, financial balance, public debt
and total spending. The growing fiscal deficit across countries and, the European
sovereign debt crisis of 2010 underscored the need for FD. In Nigeria, the growing debt,
unmanageable budget deficit, consistent imbalance in expenditure and revenue variance,
and unnecessary delay in budget processes have made FD critical. However, little
attention has been devoted to the identification of the determinants of FD in Nigeria. This
study, therefore, examined the determinants of FD in Nigeria from 1980 to 2015.
The Common pool resource theory provided the framework for the econometric model
in the mould of Auto-Regressive Distributed Lag (ARDL). Data were sourced from
Central Bank of Nigeria’s Statistical Bulletin, World Development Indicators, Quality of
Governance Basic Data Set, and Approved Annual Budgets. The extent of FD was
assessed using four complementary measures: Primary Balance (PB), Debt Sustainability
(DS), Expenditure Variance (EV) and Revenue Variance (RV). The examined
determinants of FD included spending units, capital inflows, government size, political
regime, trade openness and transparency. The time-series properties of these variables
were examined. The Bounds test approach and Error Correction Modeling technique
were deployed for the long-run and short-run analyses, respectively. All estimates were
validated at р≤0.05.
The FD models, (except DS) exhibited a long-run path (PB, F-Stat. 29.4; EV, F-Stat.14.6;
RV, F-Stat.55.0) in which spending units exerted significant influence on the measures
of FD. A percentage increase in spending units led to rise in PB (2.0%, t=4.77) and EV
(0.4%, t=2.96) and decline in RV (2.6%, t=5.94). Similarly, a percentage increase in
government size also led to rise in PB (23.5%, t=4.84) and EV (22.1%, t=3.61) and a fall
in RV (52.7%, t=3.81). Conversely, trade openness reduced the PB (6.9%, t=3.27), while
political regime (0.09, t=3.94) indicated that military regimes were more disciplined than
democratic regimes. Capital inflows reduced EV (42.2%, t=3.92).
The short-run estimates showed that a percentage increase in spending units deteriorated
RV (1.6%, t=6.30), and increased the PB (1.3%, t=8.13) and EV (0.4%, t=2.11). In
contrast, a percentage increase in capital inflows lowered the PB (26.1%, t=5.57) and EV
(33.3%, t=3.39) and increased the RV (37.8%, t=5.99). A percentage increase in
transparency lowered PB (0.4%, t=9.54) and EV (0.6%, t=5.14).
Fiscal discipline was evidently lacking in Nigeria from 1980 to 2015, as primary balance,
debt sustainability, expenditure variance and revenue variance indicated fiscal
indiscipline. The indiscipline was essentially determined by spending units, government
size, and regime type, as military regime was more discipline than democratic regimes.
Therefore, there is the need to ensure fiscal discipline in fiscal operations accordingly.
Description
Keywords
Fiscal discipline , Fiscal performance , Spending units , Budget processes in Nigeria.