Impact of Fiscal Policy Variables on Industrial Output in Nigeria (1981-2020)

The role of fiscal policy in promoting industrial output in both developed and developing countries cannot be over emphasized. However, its effectiveness as instrument of economic stabilization in Nigeria has been put to question as the industrial output has continued to perform abysmally. It is against this backdrop that this study investigated the impact of fiscal policy variables on industrial output in Nigeria. meanwhile, the study specifically: examined the impact of government expenditure on industrial output in Nigeria, determined the effect of public debt on industrial output in Nigeria and to ascertain the impact of tax on industrial output in Nigeria using vector error correction approach on time series data collated from Central Bank of Nigeria Statistical Bulletin, 2020. The variables were first subjected to unit root test using Augmented Dickey-Fuller test. The Augmented Dickey-Fuller (ADF) tests indicated that the variables were integrated of order one while Johansen cointegration test found that there is evidence of cointegration between fiscal policy variables and industrial output. The vector error correction model result indicated that government expenditure significantly led to rise in industrial output both in the short run and long run while public debt and tax significantly resulted in decline in industrial output in Nigeria both in the short run and long run. Therefore, the study recommended that rise in government expenditure, reduction in debt profile and giving tax incentive to industrial sector. These if fully implemented will translate to rise industrial output in Nigeria.