Modern development theorists, particularly Keynesian and Neo-Keynesian economists, advocate for deliberate fiscal unbalancing through budget deficits as a strategy to stimulate economic growth and development. This approach is especially critical for less developed countries, where inadequate domestic savings, limited capital formation, insufficient infrastructure, and constrained private sector capacity hinder sustainable growth and industrialization. By adopting expansionary fiscal policies, governments aim to mobilize resources, enhance productive capacity, improve critical infrastructure, and foster economic development. Fiscal deficits occur when government expenditures deliberately exceed revenues within a given period, typically a fiscal year, as part of a planned strategy to achieve these developmental objectives. To bridge the resulting budget gaps, governments employ a combination of financing mechanisms, including public borrowing (domestic and external), money creation, utilization of reserve balances, sale of government assets, proceeds from privatization, and allocation of current revenues. These financing strategies, while providing the necessary funds for public investment, also carry implications for debt sustainability, inflation, and macroeconomic stability. This study examines the relationship between public spending, borrowing, and economic growth in Nigeria using a disaggregated Vector Autoregressive (VAR) approach. By analyzing the components of fiscal policy separately, the research identifies the distinct impacts of government expenditure and borrowing on economic performance. The findings underscore the importance of targeted fiscal interventions, prudent debt management, and strategic allocation of resources to maximize the growth-enhancing effects of public spending while minimizing potential adverse macroeconomic consequences. The study provides insights for policymakers and development planners on optimizing fiscal policy to stimulate growth, particularly in economies constrained by low private sector capacity and limited domestic resources. It emphasizes that well-structured fiscal deficits, backed by effective financing and strategic expenditure, can serve as a viable tool for achieving sustainable economic development
Amarachi Ifeoma Ugwoke (Thu,) studied this question.