EFFECT OF FISCAL POLICY MEASURES, AND INSTITUTIONAL QUALITY ON PRICE STABILITY IN NIGERIA

Abstract

This paper appraises the dynamic interplay of fiscal policy measures, institutional quality, and price stability in Nigeria, 1990–2022. Data was sourced from the World Bank's World Development Indicators and the Statistical Bulletin of Central Bank of Nigeria. To measure fiscal policy and institutional quality, we utilised total public spending, total public revenue, rule of law, government effectiveness, as proxies, and to measure price stability, we utilised the consumer price index. After doing unit root tests on each series utilising the Augmented Dickey Fuller method, we found that the diagnoses revealed a mixture of I(0) and I(1) integration orders; hence, we had to use the Auto-Regressive Distributive lag limits test and its short-run variants. Fiscal policy, institutional quality, and price stability are not related in the long term, in congruent with the model's bound test upshots. Another takeaway from the shortrun regression is that total government revenue had a positive and statistically substantially effect on the consumer price index from the prior year, but total government spending has a negative and statistically substantially effect from the previous year. However, government effectiveness had a positive influence on price stability. Finally, the correlation between the rule of law and price stability is negative but insubstantially in the most current year. Hence, it was concluded that fiscal policy and institutional quality had substantially impact on consumer price index. It is recommended amongst other that the central banks of Nigeria (CBN), as a complimentary policy should consider tight monetary policy.