Empirical Analysis of the Determinants of Government Government Expenditure in Nigeria

Abstract

Government spending in Nigeria has been on the rise, reflecting a significant trend linked to two critical policy issues: debt management and budget control. The study aims to empirically identify the factors influencing government expenditure from 2004 to 2024. Specifically, it examines the interplay between tax revenue, government debt, real Gross Domestic Product (GDP), non-oil government revenue, inflation rates, and government expenditure. Two economic theories underpin this research: Wagner's Law Keynesian theory. An enhanced model based on Ndanshau and Mdadila (2023) has been utilized for this analysis. The findings reveal that government expenditure is strongly influenced by public debt and economic growth, while tax revenue and non-oil revenue serve as weaker determinants in the context of Nigeria. Notably, the study challenges Wagner's Law, which posits that government expenditure is a function of economic growth, and instead supports the Keynesian perspective that perceives government expenditure as a result of policy actions. To ensure that government spending is effectively aligned with the revenue base of the economy, it is recommended that Nigeria diversifies its revenue sources.