An Empirical Analysis of the Budget Deficit and Unemployment Nexus in Nigeria

In the face of persistent budget deficit and the Keynesian school of thoughts continual reiteration of the potentiality of fiscal policies to effectively increase employment opportunities towards full employment, effectuate price stability and stimulate economic growth and development, many researches have sought to provide empirical evidences of the aftermath of budget deficit in Nigeria. This study sought to contribute to the existing literature and provide financial analysts with more insights on the behavioral pattern of related macro-economic variables by documenting some of the robust findings on the dynamic effects of variation in government annual deficit on unemployment in Nigeria. This study employs a quantitative analysis using the ex-post factor research design. The data for the study spans 21 years (1997 - 2017). Secondary data was collected from the Central Bank of Nigeria Statistical Bulletin (2017) and publications of the National Bureau of Statistics while econometric method based on linear regression and Vector Error Correction Mechanisms (VECM) were adopted in estimating the parameters of the model. Furthermore, diagnostic checks are also performed to test for heteroskedacity and serial correlation. The findings revealed that Government Annual Deficit has a significant positive effect on the Unemployment Rate in Nigeria. Taking into cognizance of the sign of the absolute value of budget deficit used in the regression analysis, this signifies that increase in budget deficit decreases the unemployment rate in Nigeria. This claim is in congruence with the keynesian view of the result of government intervention via fiscal policies. Therefore the study recommends that deficit spending should be targeted towards effective and productive expenditures which will result to Gross Domestic Product (GDP) growth rate that is higher than the interest rate culminating into a fall in the ratio of debt to GDP over time.