Impact of Deficit Financing on the Growth of Nigeria Economy

The research examined the impact of deficit financing on the growth of Nigeria economy from 1991 - 2023. The objectives of this study are to investigate the impact of external, and internal borrowing and tax on the Nigerian economy. Secondary data were sourced from CBN and FIRS. The research employed econometric tools of co-integration, the log-log transformation of the variables, and unit root testing aimed at determining their level of stationarity and eliminating spurious regression results. Upon this, the Vector Error Correction Model was employed to determine short and long-run interconnectivity. The error correction term (ECT) in the model shows that long-run disequilibrium is adjusted annually at a speed of 2.2%. To further ascertain this, pairwise Granger causality was carried out to show their level of direction and causality. The finding revealed that TAX has a causal effect on RGDP and external borrowing/debt (EXTD) in the short run, thereby validating Keynesian approaches. The study recommends that the government without reservation should match debt with productivity and economic objectivity. Secondly, it is only when loans are channel-fed toward productive investment and yield return that people can promptly respond to their tax obligation otherwise tax will continue to be seen as inimical by Nigerians. Moreover, the government should design tax policies that complement economic growth objectives by balancing revenue generation with minimal distortionary effects on economic activities. Finally, the country's tax base is low because of its structure and administration. The agency saddled with the collection should intensify efforts to strengthen the tax base and be decentralized to the local government level to curb the level of tax evasion and avoidance.