Fiscal Policy Instruments and Sustainable Development in Nigeria

Abstract Sustainable development has been a critical policy agenda in Nigeria, especially regarding fiscal policy design and execution. Although there is an increasing empirical interest, the extant research is dominated by cross-country analyses and linear modelling frameworks, thus, not taking into account country-specific dynamics and possible nonlinear responses of sustainability outcomes to fiscal policy shocks. This research fills these gaps by exploring how the fiscal policy instruments, which are government expenditure, taxation, and the levels of public debts, are related with sustainable development in Nigeria using yearly data between 2000 and 2024. The analysis uses the Autoregressive Distributed Lag (ARDL) model to capture both short-run and long-run dynamics, and extends the analysis with a Nonlinear ARDL (NARDL) framework, to explain asymmetric effects. The findings support the fact that there is a long-run relationship between the variables. Taxation has a positive statistically significant impact on sustainable development, whereas economic growth has a significant negative impact. Government spending and government debt are substantially ineffective in the long-run, even though the reduction of government debt increases the long-run sustainability. NARDL outcome further indicates that there are strong asymmetries, which implies that positive and negative fiscal shocks have unequal impacts. The paper concludes that the effectiveness of fiscal policies in Nigeria is determined by the design, orientation and good execution of the policies. It suggests enhancement of tax regimes, enhancing efficiency of government spending, green growth policies and prudent use of debt. The study also contributes to the literature by providing country-specific and nonlinear analysis of the fiscal policy-sustainable development nexus and offer policy-relevant insights to achieve the Sustainable Development Goals