Impact of fiscal policy instruments on aggregate consumption expenditure in Nigeria

Leelee N. Deekor

Department of Economics, Ignatius Ajuru University of Education, Port Harcourt, Nigeria

Abstract

This study investigated the impact of fiscal policy on aggregate consumption expenditure in Nigeria. Using the standard error correction mechanism (ECM), the study explored time-series data from the Central Bank of Nigeria between 1980 and 2020. The St. Louis modeling approach was used to investigate the relative effectiveness of fiscal policy instruments in altering aggregate consumption expenditure in Nigeria. Government expenditure, tax revenue, and disposable income were perceived as fiscal policy tools that influence Nigeria’s aggregate consumption expenditure. The results of the cointegration test for all specifications confirmed the prevalence of long run relationships among the variables of the estimates. An increase in government expenditure propels a rise in aggregate consumption, an increase in disposable also increases aggregate consumption in Nigeria. However, increase in tax plummets consumption. We recommend that the monetary experts should fashion out an appropriate fiscal policy that will enhance rather than inhibit consumption in Nigeria.

Keywords

fiscal policy; consumption expenditure; aggregate consumption.

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