DETERMINING THE DEGREE OF FISCAL DOMINANCE AND ITS IMPLICATION ON THE CONDUCT OF MONETARY POLICY IN NIGERIA
DETERMINING THE DEGREE OF FISCAL DOMINANCE AND ITS IMPLICATION ON THE CONDUCT OF MONETARY POLICY IN NIGERIA

Summary/Abstract: This study determines the degree of fiscal dominance and its implication on the conductof monetary policy in Nigeria. It adopts the Dynamic Ordinary Least Square (DOLS) estimationtechniques and covers the periods of 1980 to 2020. The regression result shows an estimatedcoefficient of 0.77, which indicate a high degree of fiscal dominance in the country. in the same vein,the estimated coefficient was compared with the average value of the consumer price index andinterest rate in the economy, and it was discovered that high degree of fiscal dominance correspondswith high consumer price index and interest rate in the economy. Flowing from the findings,it is concluded that there is high degree of fiscal dominance in Nigeria, and this has implicationon the conduct of monetary policies in the country. The degree of fiscal dominance in the countryis likely one of the factors responsible for high prices in the country. It was recommended thatThe Nigerian government should focus on widening the domestic revenue mobilization base of thecountry. This would include expanding the tax base, setting up appropriate mechanism to generatemore revenue from fines, fees and licenses, providing a conducive environment for remittancesinflow into the country. The Central bank should limit their finances of government expenditureto 10 percent of previous year’s revenue as suggested by the World Bank. They should limit theirborrowings to capital project, such that such project can boast aggregate supply and normalizeaverage prices in the economy.

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