ANALYSIS OF GOVERNMENT EXPENDITURE AND INFLATION RATES IN NIGERIA

Abstract

This study empirically analysed the impact of government expenditure on inflation rates in Nigeria. The study adopts descriptive statistics, Augmented Dickey Fuller (ARDL) unit root test for stationarity, ARDL bound test for long run relationship and Autoregressive Distributed Lag (ARDL) model for the analysis. The data for the empirical analysis were sourced from CBN Statistical Bulletin and World Bank Development Indicators. The results of analysis indicated that a long run relationship exists among the variables. Furthermore, the results revealed that administrative expenditure by the government has negative and as well insignificant impact on inflation rate in Nigeria. In addition, exchange rate had negative influence on inflation rate in Nigeria. Finally, the result revealed that money supply had a positive and as well significant impact on inflation rate in Nigeria. Based on the findings, the study recommended as follows: Government needs to exercise due diligence in spending in order to check inflation rates. Furthermore, fiscal policy measures are required to be well coordinated so as to control excessive rise in the general price level in Nigeria.  Finally, there is need for the government to efficiently engage monetary policy instruments that are adequate in ensuring a given level of money supply that stabilizes prices.