Effect of government expenditure on growth and standard of living in nigeria

It influences every country, negatively as well as positively, whether it is developed or developing country as well.

Effect of government expenditure on growth and standard of living in nigeria

The Impact of Government Expenditure on Standard of Living in Nigeria - ArticlesNG

Keynes argues that the solution to economic depression is to induce the firms to invest through some combination of reduction in interest rates and government capital investment including infrastructure. This claim that increasing government expenditure promotes economic growth is not supported by all scholars.

A number of prominent authors especially of the neoclassical school argue that increased government expenditure may slow down the aggregate performance of the economy because in an attempt to finance raising expenditure, government may have to increase taxes and or borrowing.

The higher income tax may discourage or may be a disincentive to additional work which in turn may reduce income and aggregate demand. In the same manner, high corporate tax leads to increase in production costs and reduce profitability of firms and their capital to incur investment expenditure.

Sachs argues that among the developed countries, those with high rates of taxation and high social welfare spending perform better on most measures of economic performance compared with countries with low tax low rates of taxation and low social services spending.

Hayek however countered this argument saying that high levels of government spending in addition to harming, does not, through social welfare engendered fairness, economic equality and international competitiveness. This argument is in line with Sudha who points out that countries with large public sectors have grown slowly.


Thus, there is no general consensus among scholar on the impact of increasing government expenditure on economic growth. The level of increase of government revenue from oil revenue and non-oil revenues including borrowing from internal and external sources has significantly affected the level of government expenditure in Nigeria over the years under review.

The high levels of inflation and unemployment rates resulted in fiscal imbalance between and with negative consequences on balance of payment. The level of increase in external loans further accelerated the debt over-hand situation and other problems.

The problems were so severe that restructuring of the economy was inevitable. As a result, a comprehensive economic reform programme was introduced in The mismatch between the performance of the Nigerian economy and massive increase in government total expenditure over the years raises a critical question on its role in promoting economic growth and development.

Some authors contend that the link between public expenditure and economic growth is weak while others report varying degree of causality relationship in Nigeria Onokaya et al, The question which arises therefore is what is the relative contribution of capital expenditure and recurrent expenditure on economic growth in Nigeria?

Protection function consists of the creation of rule of law and enforcement of property rights. This helps to minimize risks to criminality, protect life and property and the nation from external aggression, defense, roads, education, health, power and communication to mention but a few.

Some scholars argue that increase in government expenditure on socio-economic and physical structures encourages economic growth. For example, government expenditure on health and education raises the productivity of labour and increase the growth of national output.

Similarly, expenditure on infrastructure such as roads, communications, power etc reduces production costs, increases private sector investment and profitability of firms, thus fostering economic growth.

Supporting this view, scholars such as KeynesRamBarroSachsRanjah and SharmaCooray conclude that expansion of government expenditure contributes positively to economic growth. The higher income tax may discourage or be a disincentive to individual working for long hours or searching for additional work which in turn may reduce income and aggregate demand.

In the same way, higher corporate tax profit tax tends to increase production costs and reduces the profitability of firms and their capacity to incur investment expenditure. Moreover, if government increases borrowing especially from the banks in order to finance its expenditure, it will compete crowds-out away the private sector, thus reducing private investment.

It was further argued that in a bid to score cheap popularity and ensure that they continue to remain in power, politicians and government officials sometimes increase expenditure and investment in unproductive projects or in goods that the private sector can produce more efficiently.

Effect of government expenditure on growth and standard of living in nigeria

Thus, government activity sometimes produces misallocation of resources and impedes the growth of national output.

In fact, the studies by LaudauHayekHenreksonMitchell and Sudha suggested that large government expenditure has negative impact on economic growth. In Nigeria, the government expenditure has continued to rise due to receipts from oil revenue Petroleum profit tax and royalties and non oil revenue company income tax, custom and excise duties, value added tax [VAT] and others CBN Statistical Bulletin, the impact of government expenditure on standard of living in nigeria () INTRODUCTION Over the years, government expenditure also known as government spending has been identified as a major tool in improving the .

In addition, the result also revealed expenditure, total recurrent expenditures, that controlling the swings in government and expenditure of education have negative revenue is very necessary in controlling effect on economic growth whereas, government expenditure and avoiding government expenditure on transport and unsustainable .

To further enhance the potentials of the Nigeria economy toward economic growth, the study recommends that the government should increase it expenditure on education at all levels.

This is a projection that if achieved, will help in achieving the macro economic stability via economic growth. The objective of this research are to examine the impact of government expenditure on standard of living in the Nigeria economy and examining the growth of government expenditure and the factors that induces such growth.

Impact of Government Expenditure on Standard of Living of the People of Nigeria. Empirical Literature Review.

There are many studies on the role of government spending in the long-term growth of national economies. Aug 30,  · The productive government expenditure relates to government expenditures on human capital development and government investment.

Secondly, the study is based on long period of analysis from , which is a sufficient time frame for the analysis of the problem of the study.