Fiscal Deficit and Inflationary Trend in Nigeria: A Cross-Causal Analysis

This study explored the causal link between inflation and fiscal deficit for Nigeria within the period 1970-2006. We used the more robust Toda-Yamamoto Granger non-causality test which allows the Granger test in an integrated system for the investigation. Annual time series data covering the period was used. The result showed no clear evidence of causality between fiscal deficit and inflation. This suggest that inflation will be better controlled by looking at its other determinants than fiscal deficit and what should be of paramount concern to policy makers as regards inflation should not so much be the level of fiscal deficits but the sources of its financing.