Purpose This study aims to examine asymmetric causality between fiscal deficits and poverty reduction in Nigeria for the period 1981–2023. Design/methodology/approach This study adopts Hatemi-J data decomposition procedures, the asymmetric causality approach and bootstrapping simulation with leverage adjustments. Findings Symmetric causality tests indicate that poverty is a significant causal contributor to fiscal deficits. However, there is no evidence that fiscal deficits reduce poverty. These findings suggest that ongoing extreme poverty forces Nigerian governments to run fiscal deficits; however, these deficits do not effectively alleviate poverty. Also, this research identifies a two-way asymmetric causality between the positive shock elements of poverty and fiscal deficits. These results suggest that the urgent need to reduce poverty drives governments to maintain persistent fiscal deficits, which, in turn, exacerbate poverty in Nigeria. Social implications The study concludes that considering asymmetric structures is crucial in examining the relationship between fiscal deficits and poverty reduction. Thus, scholars and professional analysts should rationalise asymmetries as real fundamental realities rather than myths in the analysis of the nexus between fiscal deficits and poverty reduction. Originality/value This study differs from existing research in two ways: firstly, it examines the possibility of bidirectional causality between fiscal deficits and poverty reduction; secondly, unlike previous studies, it incorporates asymmetric structures and nonlinearities into the causal relationship between fiscal deficits and poverty.
Olaniyi et al. (Fri,) studied this question.