Effect Of Income On Government Expenditure In Nigeria: Musgrave’s U-Shaped Quadratic Approach

Abstract

This study examines the effect of income on government expenditure in Nigeria using annual time series data for a period of 62 years (1961-2023). To ensure the robustness of the results this paper employs the Autoregressive Distributive Lag (ARDL) model. The unit root properties of the variables was utilized using Augmented Dickey Fuller (ADF) and the results indicate that most of the variables were stationary at level while others at first difference. The results of the cointegration tests suggest rejection of the null hypothesis of no long run relation among the variables of each equation. The study adopts Musgrave's U-Shaped Quadratic Approach as its benchmark. The findings revealed that total revenue, aggregate income, per capita income, revenue per capita and population contribute to the expansion of government expenditure while the civilian regime dummy variable indicates that the government expenditure is lower during the civilian era than during a military regime in all estimations; election year is not associated with higher government expenditure. The study recommends the increasing state expenditure to maintain aggregate demand. Also, regulatory authorities should realize the inevitability of the need for additional governmental services that would be demand-driven. Lastly, the policy makers or regulatory authorities need to understand when the expenditure is overblown so as to take appropriate measures as a corrective action.