Sustainability of Fiscal Deficit in Nigeria: a Co-Integration Analysis With Structural Break

ABSTRACT
The federal and state governments of Nigeria suffer from many fiscal imbalances including a long history of fiscal deficits and unsustainable fiscal policy in the economy. Hence, this paper examines the sustainability of the federal and state fiscal deficits from 1960-2013, using the Gregory-Hansen co-integration test and the Zivot-Andrews unit root test, which allow for structural break. In this connection, the results indicate that the federal fiscal deficit is weakly sustainable while that of the state governments is unsustainable. It is therefore recommended that both the federal and state governments should consolidate their fiscal operations by rationalizing their expenditures and augment their revenue sources. Specifically, the governments should meaningfully cut their expenditures by blocking all fiscal leakages, reducing the



cost of governance through cuts in the pays of political office holders and scrapping unnecessary offices. The governments should also diversify their revenue sources and resuscitate highly competitive public enterprises.

Keywords: Fiscal sustainability; Debt; Fiscal deficits; Structural break; Nigeria
JEL classification: E62; H72; H710