Bofiscal Policy and Economic Growth in Nigeria: Testing the Prediction of the Endogenous Growth Model

The objectives of this study were to examine the neutral effect of both non-productive government expenditure financed by non-distortionary taxation, positive and negative effect of productive government expenditure and distortionary taxation respectively on economic growth in Nigeria using annual data from 1970-2005. The Error Correction Mechanism technique was employed to analyze the data. The findings were consistent with previous empirical findings in other countries; an increase non-productive government expenditure financed by non-distortional taxes have had neutral effect on economic growth as predicted by economic theory. The productive government expenditure had positive effect on economic growth but contrary to expectation there was no evidence of distortionary effects on economic growth of distortionary taxation. Implication of this for the policy maker is that the composition of government expenditure and tax revenue is crucial in determining economic growth in Nigeria.