An Examination of the Nexus Between GDP, Inflation, and Fiscal Policy in Nigeria
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Background of the Study:
The interrelationship between GDP, inflation, and fiscal policy is central to understanding Nigeria’s macroeconomic dynamics. Over recent years, fluctuations in GDP growth and inflation rates have prompted policymakers to recalibrate fiscal policies to stabilize the economy. As Nigeria grapples with the challenges of oil dependency and external shocks, fiscal policy reforms have been initiated to foster sustainable growth while curbing inflationary pressures. An expanding GDP is expected to generate increased revenues that can fund public services and infrastructure; however, if not managed prudently, rapid growth may also lead to demand-pull inflation. In this context, fiscal policies—ranging from tax reforms to targeted government spending—play a critical role in harmonizing these dynamics (Afolabi, 2023). Recent studies highlight that coordinated fiscal measures are necessary to strike a balance between stimulating growth and maintaining price stability (Babatunde, 2024). This study examines the nexus between these variables by evaluating historical data and current fiscal measures, aiming to understand how fiscal policy can effectively mediate the impacts of GDP fluctuations and inflation in Nigeria (Chinaza, 2025).
Statement of the Problem:
Despite ongoing fiscal reforms, Nigeria continues to experience volatile GDP growth and persistent inflation. The lack of an integrated policy framework often results in fiscal measures that do not fully address the adverse effects of rapid growth on price levels. Such discrepancies contribute to economic uncertainty and hinder long-term planning. The current fiscal policy mix may be inadequate to balance the dual objectives of promoting growth and containing inflation, leading to adverse impacts on overall economic stability (Ibrahim, 2023). This study seeks to identify the specific factors that disrupt the synergy between GDP, inflation, and fiscal policy, and to recommend strategies that can enhance policy effectiveness.
Objectives of the Study:
- To analyze the relationship between GDP, inflation, and fiscal policy.
- To identify the challenges in harmonizing fiscal policy with economic performance indicators.
- To propose policy measures that improve macroeconomic stability.
Research Questions:
- What is the relationship between GDP growth, inflation, and fiscal policy in Nigeria?
- Which fiscal policy measures are most effective in balancing growth and inflation?
- How can fiscal policies be adjusted to enhance economic stability?
Research Hypotheses:
- H1: There is a significant relationship between GDP growth and inflation in Nigeria.
- H2: Effective fiscal policies moderate the adverse effects of rapid GDP growth on inflation.
- H3: Improved fiscal coordination leads to enhanced economic stability.
Significance of the Study:
This study is significant as it provides an in-depth examination of how GDP, inflation, and fiscal policy interact in Nigeria’s economy. The findings will offer valuable insights for policymakers to design fiscal measures that support sustainable growth while ensuring price stability. Such insights are critical for achieving long-term macroeconomic balance (Obi, 2024).
Scope and Limitations of the Study:
This study is limited to exploring the nexus between GDP, inflation, and fiscal policy in Nigeria and does not incorporate other global economic factors.
Definitions of Terms:
• GDP: The total value of goods and services produced within Nigeria.
• Inflation: The rate at which the general price level of goods and services is rising.
• Fiscal Policy: Government strategies involving taxation and spending to influence economic conditions.
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