Effects of Revenue Shocks on the Relationship Between Government Revenue and Economic Growth
This study examines the long-run relationship between government revenue and economic growth in periods of structural breaks in government revenue in Nigeria from 1981 to 2015.Structural breaks were identified in the sources of government revenue; public debts (external debt stocks), oil revenue and non-oil revenue. Using the unit root breaking point, 2003, 2005 and 2006 were identified as the periods of revenue shocks in oil revenue, non-oil revenue and external debts respectively. Findings from the normalized cointegration coefficients established that despite the revenue shocks, there is a long run effects between government revenue and economic growth in Nigeria. Different effects on economic growth were found when revenue shocks or structural breaks are present. Structural break in oil revenue reduces GDP by 5.9%, external debts shock will negatively affect GDP by 14.86%. Interesting, it is found that different shocks have similar effects on economic growth when they have the same break date. Results on fiscal policy shows the use of expansive fiscal policy however the effects are very high when there is any form of economic shocks or structural breaks. 1% increase in fiscal policy leads to approximately 6% decrease in GDP in shock periods however leads to 0.1% increase in GDP in non-break date in the long run. This study has practical implication for a small tax base to cover minimum costs. This is in contrary to the revenue productivity theory, indicating the inefficient tax administration in the country in economic instability periods. Keywords - Revenue, Public Debt, Growth, Structural Break.