Fiscal Policy Shocks and Private Consumption in Nigeria: Blanchard-Perotti (2002) Approach

21 Pages Posted: 9 May 2018

See all articles by Isiaq Olasunkanmi Oseni

Isiaq Olasunkanmi Oseni

Department of Economics, Olabisi Onabanjo University

Date Written: October 21, 2015

Abstract

This paper examines the effects of fiscal policy shocks on private consumption in Nigeria. Albeit, there is a considerable number of works examining the effects of fiscal policy shocks on private consumption globally but in Nigeria, no study has used the structural VAR approach by Blanchard and Perotti (2002) as used in this paper. This approach relies on institutional information about the tax and transfer systems and the timing of tax collection to identify the automatic response of taxes and spending to private consumption as well as to infer fiscal shocks. The key result of this paper is that positive government spending shocks in Nigeria have an instantaneous negative effect on private consumption. The effect becomes significant in the period following the shock. Also, positive tax shocks have a negative effect on private consumption in the period of a shock and the effect becomes statistically insignificant afterwards. On this premises, one-off changes in government spending and taxes in Nigeria are long-lived and short-lived respectively. Thus, the government expenditure changes can be used to support private consumption in the long-run while that of taxes can only be used to support private consumption for a short period.

Keywords: Fiscal Policy, Government Spending, Net Taxes, Blanchard-Perotti (2002), Structural Vector Autoregressive

JEL Classification: C10, E62, F62, H30

Suggested Citation

Oseni, Isiaq, Fiscal Policy Shocks and Private Consumption in Nigeria: Blanchard-Perotti (2002) Approach (October 21, 2015). Available at SSRN: https://ssrn.com/abstract=3166615 or http://dx.doi.org/10.2139/ssrn.3166615

Isiaq Oseni (Contact Author)

Department of Economics, Olabisi Onabanjo University ( email )

Ago-Iwoye
Nigeria
+2347035178780 (Phone)

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