International Journal of Academic Accounting, Finance & Management Research (IJAAFMR)   Year: 2023 | Volume: 7 | Issue: 1 | Page No.: 42-58 Fiscal Deficits and Inflation in Nigeria Download PDF Akpan Ekomabasi & Christopher N. Ekong Abstract: The broad objective of this study was to investigate the effects of fiscal deficit on inflation in Nigeria using annual time series data from 1981 to 2019. The specific objectives include, to examine the short run effect of fiscal deficit on inflation in Nigeria; examine the long run effect of fiscal deficit on inflation in Nigeria; and ascertain the nature and direction of the causal relationship between fiscal deficit and inflation in Nigeria. The Autoregressive distributed lag (ARDL) and cointegration bound test estimation technique was adopted for the study. The ARDL results reveal that there is a significant and negative long run relationship between fiscal deficit and inflation. There is also a significant and positive relationship between exchange rate and inflation in the long run. However, there was an insignificant long-run relationship between money supply and inflation. On the direction of causality, unidirectional causality running from fiscal deficit to inflation was recorded. The study, therefore, concluded that chronic deficit spending over time is the root cause of inflation in Nigeria. As a result, the answer to Nigeria's price instability falls under the scope of the fiscal policy framework, as such policies targeted at inflation control could be best achieved if geared towards controlling budget deficit and exchange rate in Nigeria. The study therefore recommended a sustained budget deficit in order to provide the infrastructure needed to harness untapped and underutilized human and material resources.