The Causal Relationship between Government Revenue and Expenditure in Nigeria

George Anokwuru; Chioma Chidinma

doi:10.18535/ijsrm/v14i01.em18

Abstract

For a long time, the link between how much money the government gets and how much it spends has been a big topic of discussion in the study of public finance. This paper looked at the cause-and-effect connection between government revenue and spending in Nigeria from 1981 to 2023 using a Granger-causality test. The results showed that there's a two-way relationship between total government spending and total government revenue, which matches the idea of fiscal synchronization. This outcome suggests that because government spending and revenue are connected, the government takes the decision on spending and revenue concurrently. Based on this idea, policymakers should work to increase revenue and cut spending all together to manage the country’s budget deficit effectively

Keywords

Granger CausalityGovernment RevenueGovernment Expenditure and Nigeria

References

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Rafaqat, A., & Mahmood, T. (2012). Government revenue–expenditure nexus: Evidence from Pakistan. International Journal of Economics and Finance, 4(7), 123–131.Google Scholar ↗
Wendwesen, A. (2012). Government expenditure and economic growth: Evidence from developing countries. International Journal of Economics and Finance, 4(6), 45–55.Google Scholar ↗
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[refR-2] Al-Zeaud (2014). The Causal Relationship between Government Revenue and Expenditure in Jordan. Global Journal of Management and Business Research: B Economics and Commerce, 14(6), 49-57.Google Scholar ↗

[refR-3] Amobi, A. P. (2025). Causal Links between Tax Revenue, Government Expenditure, and Economic Growth in Nigeria: A Wavelet Approach. Afropolitan Journals, 18(1), 329-352.Google Scholar ↗

[refR-4] Aregbeyen, O., & Insah, B. (2013). Testing the revenue–expenditure nexus in Nigeria. Asian Economic and Financial Review, 3(10), 1314–1322.Google Scholar ↗

[refR-5] Balogun, A. (2017). Causality between Government Expenditure and Government Revenue in Nigeria. Asian Journal of Economics and Empirical Research, 4(2): 90-98.Google Scholar ↗

[refR-6] Barro, R. J. (1979). On the determination of the public debt. Journal of Political Economy, 87(5), 940–971.Google Scholar ↗

[refR-7] Buchanan, J. M., & Wagner, R. E. (1977). Democracy in deficit: The political legacy of Lord Keynes. Academic Press.Google Scholar ↗

[refR-8] Central Bank of Nigeria (2011). Annual Economic Report, 31st December, 2011.Google Scholar ↗

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[refR-23] Debt Management Office. (2024). Public debt statistics. Debt Management Office of Nigeria.Google Scholar ↗

[refR-24] Eita, J. H., & Mbazima, D. (2008). The Causal Relationship between Government Revenue and Expenditure in Namibia. Journal of Economic and Financial Sciences, 2(2), 175-186.Google Scholar ↗

[refR-25] Emelogu, C. O., & Uche M. O. (2010). An Examination of the Relationship between Government Revenue and Government Expenditure in Nigeria: Cointegration and Causality Approach. Central Bank of Nigeria Economic and Financial Review Volume 48(2), 35-57.Google Scholar ↗

[refR-26] Friedman, M. (1978). The limitations of tax limitation. Policy Review, 5, 7–14.Google Scholar ↗

[refR-27] Hemming, R. (1991). Public expenditure and fiscal policy. International Monetary Fund Working Paper No. 91/17. International Monetary Fund.Google Scholar ↗

[refR-28] Ibrahim, T. A. (2009). Public expenditure and economic growth in Nigeria. Journal of Economics and Sustainable Development, 1(2), 45–54.Google Scholar ↗

[refR-29] International Monetary Fund. (2023). Nigeria: 2023 Article IV consultation - Staff report. International Monetary Fund.Google Scholar ↗

[refR-30] Keho, Y., (2010), ‘Budget Balance through Revenue or Spending Adjustments? An Econometric Analysis of the Ivorian Budgetary Process, 1960- 2005’, Journal of Economics and International Finance, 2, 1, 001-011.Google Scholar ↗

[refR-31] Komain, J., & Tantatape, B. (2013). The Relationship between Government Expenditure on Economic Growth in Thailand. Journal of Applied Economics and Economic Education Research, 8(2), 1-7.Google Scholar ↗

[refR-32] Meltzer, A. H., & Richard, S. F. (1981). A rational theory of the size of government. Journal of Political Economy, 89(5), 914–927.Google Scholar ↗

[refR-33] Musgrave, R. A. (1966). Principles of budget determination. In H. Cameron & W. Henderson (Eds.), Public Finance: Selected Readings. Random House.Google Scholar ↗

[refR-34] Musgrave, R. A., & Musgrave, P. B. (1989). Public finance in theory and practice (5th ed.). McGraw-Hill.Google Scholar ↗

[refR-35] Ogujiuba, K., & Abraham, T. W. (2012). Testing the Relationship between Government Revenue and Expenditure: Evidence from Nigeria. International Journal of Economics and Finance, 4(11), 172-182.Google Scholar ↗

[refR-36] Ogujiuba, K., & Abraham, T. W. (2012). Testing the relationship between government revenue and expenditure: Evidence from Nigeria. International Journal of Economics and Finance, 4(11), 172–182.Google Scholar ↗

[refR-37] Okulegu, B. E. (2013). Public sector expenditure and economic growth in Nigeria. African Journal of Economic Policy, 20(1), 65–82.Google Scholar ↗

[refR-38] Olatunji, M. (2013). Government expenditure and revenue nexus: Evidence from Nigeria. Journal of Economics and Sustainable Development, 4(10), 127–134.Google Scholar ↗

[refR-39] Omo, A., & Taofik, M. (2012), Testing the Revenue and Expenditure Nexus in Nigeria: An Application of the Bound Test Approach, European Journal of Social Sciences, 27(3), 374-380.Google Scholar ↗

[refR-40] Organisation for Economic Co-operation and Development. (2021). Revenue statistics in Africa 2021: The impact of COVID-19 on African revenues. OECD Publishing.Google Scholar ↗

[refR-41] Peacock, A. T., & Wiseman, J. (1979). Approaches to the analysis of government expenditure growth. Public Finance Quarterly, 7(1), 3–23.Google Scholar ↗

[refR-42] Rafaqat, A., & Mahmood, T. (2012). Government revenue–expenditure nexus: Evidence from Pakistan. International Journal of Economics and Finance, 4(7), 123–131.Google Scholar ↗

[refR-43] Wendwesen, A. (2012). Government expenditure and economic growth: Evidence from developing countries. International Journal of Economics and Finance, 4(6), 45–55.Google Scholar ↗

[refR-44] Yousef, E. & Mohammad, R. (2012). The causality between government revenue and government expenditure in Iran, International Journal of Economic Sciences and Applied Research, Kavala Institute of Technology, Kavala, 5,(1), 129-145.Google Scholar ↗

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