Journal of Business & Financial Affairs

Sources of Public Funds and Economic Prosperity: The Nigerian Case

Abstract

Onyele KO* and Nwokoacha EB

This study examined the various sources of public funds and their resultant effect on economic growth in Nigeria from 1986-2014. The sources of public funds considered in this study were tax revenue, oil revenue, external debt and national savings. Two models were used in this study; one analyzed the effect of these individual sources of public funds on economic growth, while the other model explained the effect of aggregate government revenue on economic growth. The times series data sourced from Central Bank of Nigeria Statistical Bulletin were analyzed using unit root tests, cointegration tests and vector error correction mechanism (VECM). The unit root test revealed that all the variables were stationary at first difference except tax revenue which was significant at level. The cointegration tests (both Johansen and Engle-Granger) showed that a long run relationship existed between the individual sources of public funds and economic growth, as well as aggregate government revenue and economic growth. The results obtained for model one revealed that tax revenue and oil revenue had a positive effect on economic growth, while national savings and external debt exerted a negative effect on economic growth. With respect to total government revenue, economic growth depleted as a result of changes in total government revenue. Finally, it was recommended among other things that government should fulfil her obligations of social and economic welfare to her citizens, so that anyone who enjoys such services will be conscious of tax payment in Nigeria.