ECONOMIC AND POLITICAL DETERMINANTS OF PUBLIC SECTOR BUDGET DEFICITS: THE CASE OF NIGERIA
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Published
Mar 1, 2010
Abstract
The main focus of the paper is to analyze the effects of both economic and political variables on public sector budget deficits. The econometric results show that the main determinants of budget deficits include international capital inflow, international interest rate, debt service costs, public expenditure, political instability and economic growth. The author makes the following recommendations. Firstly, international capital should be used to finance projects that contribute meaningfully to the economy. Secondly, since international interest rate is outside the control of Nigeria’s government and monetary authorities, emphasis on foreign loans should be reduced. Thirdly, government should avoid external debt where necessary. Fourthly, government should increase her spending on infrastructural development. Furthermore, government should strengthen the political institutions including the judiciary, as well as create a level playing ground for all its citizens, so as to promote political stability. Moreover, government should give more incentives and subsidies such as low corporate profit tax, improvement in power and energy generation, etc., in order to encourage producers as well as promote economic growth. Lastly, government should sustain the on-going war against corruption so that public funds are not misappropriated or embezzled by government officials.
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Keywords
public deficitspolitical instabilityeconomic growthpublic expenditure
References
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• David Skilling, Richard J. Zeckhauser (2002) “Political competition and debt trajectories in Japan and the OECD,” Japan and the World Economy, Vol. 14 No. 2, pp. 121-135.http://www.sciencedirect.com/scienc
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• Woo, J. (2003) “Social polarization, industrialization, and fiscal instability: theory and evidence,” Journal of Development Economics, Vol. 72 No. 1 pp. 223-252. http://www.sciencedirect.com/science
• Yesim Kustepeli and Gulcan Onel (2005) “The Effects of Political Fragmentation of Fiscal Deficits in Turkey,” Discussion Paper Series No. 05/02.
• Alesina, A. and R. Perroti (1995) “The Political Economy of Budget Deficits,” IMF Staff Paper 42, pp. 1-31.
• Alesina, A. and R. Perroti (1996) “Budget Deficits and Budget Institutions,” NBER Working Paper No. 5556.
• Ali Bayar and Bram Smeets (2009) “Economic, Political and Institutional Determinants of Budget Deficits in the European Union,” CESIFO Working Paper No. 2611.
• Ali Salman Saleh and Charles Harvie (2005) “An Analysis of Public Sector Deficits and Debt in Lebanon: 1970-2000,” MERIA Vol. 9 No 4.
• Andres Velasco (1993) “A Model of Endogenous Fiscal Deficits and Delayed Fiscal Reforms,” Economic Research Reports 93/04.
• Aristovnik, A. (2008) “How Sustainable are Fiscal Deficits? Evidence from Mediterranean Countries,” MPRA Paper No. 12317.
• Barro, R. (1979) “On the Determinants of Public Debt,” Journal of Political Economy, 87, 940-71.
• Calcagno T. Peter and Monica Escaleras (2007) “Party Alternation, Divided Government and of Fiscal Performance within U.S. States,” Economics of Governance, Vol. 8 No2.
• Cecilia, Rumi (2009) “Political alternation and the fiscal deficits,” Economics LettersVol. 102 No. 2, pp. 138-140.http://www.sciencedirect.com/science/journal/01651765
• Central Bank of Nigeria (2008) Statistical Bulletin, 50th years Special Anniversary Edition.
• David Skilling, Richard J. Zeckhauser (2002) “Political competition and debt trajectories in Japan and the OECD,” Japan and the World Economy, Vol. 14 No. 2, pp. 121-135.http://www.sciencedirect.com/scienc
• De Haan, J. and J. E. Sturm (1997) “Political and economic determinants of OECD budget deficits and government expenditures: A reinvestigation,” European Journal of Political Economy, Vol. 13 No. 4, pp. 739-750. http://www.sciencedirect.com/science/
• Diokno, B. (2007) “Economic and Fiscal Policy Determinants of Public Deficits: The Philippine Case,” Discussion Paper No. 0702, School of Economics, University of Philippines.
• Edin P. and H. Ohlsson (1991) “Political determinants of budget deficits: Coalition effects versus minority effects,” European Economic ReviewVol. 35, No. 8, pp 1597-1603. http://www.sciencedirect.com/science / journal/00142921
• Ellis, M. A. and D. E. Schansberg (1999) “The Determinants of State Government Debt Financing,” Public Finance Review, Vol. 27 No. 6, pp. 571-587.
• Leonardo Bartolini and Amartya Lahiri (2006) “Twin Deficits, Twenty Years Later,” Current Issues in Economics and Finance, Vol. 12 No. 7.
• Luca Agnello and Ricardo M. Sousa (2009) “The Determinants of Public Deficit Volatility,” ECB Working Paper Series No. 1042.
• Marcela Eslava (2006) “The Political Economy of Fiscal Policy: Survey,” Inter-American Development Bank Working Paper Series No. 583.
• Marshall, J. and K. Schmidt-Hebbel (1989) “Economic and Policy Determinants of Public Sector Deficits,” World Bank Working Paper, WPS 321.
• Mika Tujula and Guido Wolswijk (2004) “What Determines Fiscal Balances? An Empirical Investigation in Determinants of Changes in OECD Budget Balances,” ECB Working Paper Series No. 422.
• Mink, M. and J. De Haan (2005) “Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?” CESIFO Working Paper 1532 (2).
• Oussou Kouassy and Bouabre Bohoun (1993) “The Determinants of Fiscal Deficit and Fiscal Adjustment in Cote D’Ivoire,” AERC Research Paper No. 15.
• Roubini, N. (1991) “Economic and political determinants of budget deficits in developing countries,” Journal of International Money and Finance, Vol. 10, Supplement 1, pp. S49-S72. http://www.sciencedirect.com/science/
• Roubini, N. and J. D. Sachs (1989a) “Political and Economic Determinants of Budget Deficits in the Industrial Democracies,” European Economic Review, Vol. 33 No. 5, pp. 903-38.
• Roubini, N. and J. D. Sachs (1989b) “Government Spending and Budget Deficits in the Industrial Countries,” Economic Policy, Vol. 8, pp. 99-132.
• Srdjan Redzepagic and Matthieu Llorca (2007) “Does Politics Matter in the Conduct of Fiscal Policy? Political Determinants of the Fiscal Sustainability: Evidence from Seven Individual Central and Eastern European Countries (CEEC),” PANOECONOMICUS, Vol. 4, pp. 489-500.
• Takayuki Sakamoto (2001) “Effects of Government Characteristics on Fiscal Deficits in 18 OECD Countries, 1961-1994,” Comparative Political Studies, Vol. 34, No. 5, pp. 527-554. http://cps.sagepub.com/cgi/alerts
• Tom Clark and Andrew Dilnot (2002) “Measuring the U.K. Fiscal Stance since the Second World War,” Institute for Fiscal Studies (IFS) Briefing Note No. 26.
• Woo, J. (2003) “Economic, political, and institutional determinants of public deficits,” Journal of Public Economics, Vol. 87 No. 3/4, pp. 387-426. http://www.sciencedirect.com/science/journal/00472727
• Woo, J. (2003) “Social polarization, industrialization, and fiscal instability: theory and evidence,” Journal of Development Economics, Vol. 72 No. 1 pp. 223-252. http://www.sciencedirect.com/science
• Yesim Kustepeli and Gulcan Onel (2005) “The Effects of Political Fragmentation of Fiscal Deficits in Turkey,” Discussion Paper Series No. 05/02.
How to Cite
Nurudeen, A. 2010. “ECONOMIC AND POLITICAL DETERMINANTS OF PUBLIC SECTOR BUDGET DEFICITS: THE CASE OF NIGERIA”. Studies in Business and Economics 15 (2). https://doi.org/10.29117/sbe.2010.0056.
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Articles