Fiscal Policy Response to Unemployment in Nigeria: Empirical Insights and Policy Implication

This study examines fiscal policy response to unemployment in Nigeria from 1991 to 2022. Data were obtained from the Central Bank of Nigeria Statistical Bulletin and the World Bank's World Development Indicators, 2022. Domestic debt, external debt, capital expenditure, recurrent expenditure, oil revenue, and tax revenue are adopted to proxy fiscal policy while unemployment is used as the dependent variable. The individual series were subjected to unit root tests using the Augmented Dickey Fuller approach and the diagnoses established mixed orders of I(0) and I(1) integrations, thereby necessitating application of the Auto-Regressive Distributive lag bounds test as well as the short-run versions. The analyzed model's result using the bound test established that there is no long-run relationship between fiscal policy and unemployment. Therefore, further findings from the short-run regression revealed that domestic debt, capital expenditure and tax revenue had a negative but significant influence on unemployment. However, the external debt and recurrent expenditure reported an insignificant impact on unemployment whereas oil revenue had a positive and statistically significant relationship with unemployment. Hence, it was concluded that fiscal policy significantly responds to unemployment in Nigeria. It was therefore recommended amongst other that federal ministry of finance should review the country's fiscal policies. They should consider adjustments to ensure that domestic debt levels, do not inadvertently ate unemployment.