Fiscal Policy Instruments and Sustainable Development in Nigeria

Abstract 
Sustainable development has been a critical policy agenda in Nigeria, especially regarding fiscal 
policy design and execution. Although there is an increasing empirical interest, the extant research 
is dominated by cross-country analyses and linear modelling frameworks, thus, not taking into 
account country-specific dynamics and possible nonlinear responses of sustainability outcomes to 
fiscal policy shocks. This research fills these gaps by exploring how the fiscal policy instruments, 
which are government expenditure, taxation, and the levels of public debts, are related with 
sustainable development in Nigeria using yearly data between 2000 and 2024. The analysis uses 
the Autoregressive Distributed Lag (ARDL) model to capture both short-run and long-run 
dynamics, and extends the analysis with a Nonlinear ARDL (NARDL) framework, to explain 
asymmetric effects. The findings support the fact that there is a long-run relationship between the 
variables. Taxation has a positive statistically significant impact on sustainable development, 
whereas economic growth has a significant negative impact. Government spending and 
government debt are substantially ineffective in the long-run, even though the reduction of 
government debt increases the long-run sustainability. NARDL outcome further indicates that 
there are strong asymmetries, which implies that positive and negative fiscal shocks have unequal 
impacts. The paper concludes that the effectiveness of fiscal policies in Nigeria is determined by 
the design, orientation and good execution of the policies. It suggests enhancement of tax regimes, 
enhancing efficiency of government spending, green growth policies and prudent use of debt. The 
study also contributes to the literature by providing country-specific and nonlinear analysis of the 
fiscal policy-sustainable development nexus and offer policy-relevant insights to achieve the 
Sustainable Development Goals