Are Determinants of Government Expenditure Symmetry or Asymmetry? Fresh Evidence from Nigeria

Nigeria's government has been playing the role of internalizing economic externalities, dealing with unemployment, and promoting the overall welfare of the populace. However, despite rising government expenditure, unemployment and inflation persist. This study reexamines the determinants of government expenditure, addressing three unresolved issues: omitted variables bias, aggregation bias, and asymmetry. To address aggregation bias, the analysis separates capital and recurrent expenditure components. A nonlinear autoregressive distributed lag (NARDL) model is employed to address asymmetry. Using data from 1981 to 2021 and drawing on models by Peacock and Wiseman (1961), Devarajan et al. (1996), and Giavazzi et al. (2000), the study finds that capital expenditure is countercyclical, while recurrent expenditure is procyclical. Key findings reveal that exchange rate and oil price exhibit asymmetric behavior. Asymmetric tax revenue positively affects recurrent expenditure and shows potential to drive capital expenditure. Similarly, asymmetric oil revenue and exchange rate behavior influence capital expenditure positively, while openness and inflation affect it negatively. Recurrent expenditure responds positively to asymmetric tax and oil revenues but negatively to exchange rate and openness. Election periods are strong positive determinants of recurrent expenditure in both the short and long run. Based on these findings, the study recommends prioritizing capital expenditure, reducing reliance on volatile oil revenue, and considering forward exchange rate mechanisms to manage exchange rate fluctuations.