Effect of Government Fiscal Policy on Private Investment in Nigeria

This study examines the effect of government fiscal policy on private investment in Nigeria using Auto-regression Distributed Lag Models (ARDL) model on a secondary time series data sourced from Central Bank of Nigeria (CBN) Statistical Bulletin. From the regression analysis, it is observed that inflation, government tax revenue, government recurrent expenditure, government capital expenditure, leading interest rate and exchange rate conform to the a priori expectation of the study and that all the variables of the study are statistically significant in explaining private investment in Nigeria. The F-test conducted in the study shows that the model has a goodness of fit and is statistically different from zero. In other words, there is a significant impact between the dependent and independent variables in the model. Finally, both R2 and adjusted R2 show that the explanatory power of the variables is extremely high and very strong in explaining private investment in Nigeria. Based on the findings from the empirical analysis, the following recommendations were made: The government should adopt a contractionary monetary policy by reducing the supply of money within the economy by lowering the prices of bonds and rising interest rates. This will reduce consumption, prices fall and also sows down inflation. The government should encourage private investment by implementing moderate tax revenue. This will encourage saving and investment. The government should increase spending on basic and public infrastructure. This will provide the needed environment for private investment. The government should promote a stable interest rate and strengthens the exchange rate. This will improve the some stock prices as companies pay less for loans and raw materials, causing higher profits. It will make the economy richer, and increases the purchasing power.