The Impact of Fiscal Policy Variables on Private Investment in Nigeria

Abstract Motivated by the need to avoid potential parameter bias associated with previous empirical researches, the current study conducted a disaggregated inquiry of the individual impact of fiscal policy variables on private investment in Nigeria. The empirical investigation adopted the Autoregressive Distributed Lag method which allows for the simultaneous estimation of the short and long-run relationships between variables, removing the problems associated with excluded variables and the existence of autocorrelation. The method was applied to time series data spanning the period 1980-2017, generated using the quantitative and ex- post facto research design. The bounds test results established a co-integrating relationship between private investment and its selected determinants. The empirical findings confirmed that various components of direct taxes retarded the growth of private investment while indirect taxes stimulated the growth of private investment. Government capital spending had a favourable and statistically relevant impact on private investment while public external debt suggested a deleterious effect of inhibiting private investment both in the long and short run. The study recommended harmonizing tax policies to curb multiple taxes and high cost of doing business; and major investment in infrastructures to improve private investment and affect long-term growth positively.JEL Classification Codes: A22, E62, F16, G18, H26.