Carbon Policy, Fiscal Sustainability, and Economic Growth in Nigeria: Assessing the Post-Subsidy Fiscal Transition

Nigeria's 2023 removal of its longstanding fuel subsidy constitutes one of the most consequential fiscal and carbon policy events in the country's post-independence history. This study reframes the reform as an implicit carbon pricing intervention and empirically examines its consequences for fiscal sustainability and economic growth over the period 1990-2023. Employing the Engle-Granger two-step cointegration approach, an Error Correction Model (ECM), and the Toda-Yamamoto Granger non-causality procedure, the study finds robust cointegration among the fiscal and growth variables across all three model specifications. The ECM speed-of-adjustment coefficient (-0.6424, p = 0.003) confirms that approximately 64.24% of deviations from long-run fiscal equilibrium are corrected annually, indicating a self-correcting fiscal mechanism absent in the pre-reform period. Government expenditure Granger-causes government revenue (χ² = 18.10, p < 0.001), confirming the spend-and-tax hypothesis, while government revenue Granger-causes economic growth (χ² = 5.68, p = 0.017). Gross fixed capital formation Granger-causes government revenue (χ² = 4.92, p = 0.027), establishing an investment-revenue-growth causal chain. These findings carry direct implications for Nigeria's National Determined Contribution (NDC) commitments and green fiscal policy design in resource-dependent economies.