The Impact of Fiscal Deficits on Inflation in Nigeria between 1980 and 2010

Abstract

This study examined fiscal deficits and inflation in Nigeria for the period of 30
years starting from 1980 to 2010. The aim was to establish which among inflation rate and interest rate impact on fiscal deficit. It goes beyond existing studies on this subject by employing econometric technique, particularly, the Ordinary Least Square (OLS) estimation method of multiple regressions. The analyses showed that both inflation rates and interest rates were rightly signed with fiscal deficits. Despite this theoretical congruence, inflation rates impacted on fiscal deficits while interest rate does not. The inability of interest rates to impact on fiscal deficits perhaps could be blamed on unstable macroeconomic policy environment, corruption, and more. Thus, it is suggested that there is need to reorder our fiscal policy priorities based on sincerity so as to rebuild confidence in the economy. Also, the current inflation targeting policy regime should be implemented based on fiscal discipline, financial sector stability as well as a reliable model for data computation of inflation.