Asian Journal of Economics, Finance and Management

Aim: This study examines the short-run and long-run associations of budget deficits and tax revenue mobilisation with economic performance in Nigeria. It also considers how fiscal variables relate to inflation, the interest rate, and trade openness within a dynamic framework.

Methodology: Annual time-series data for 2000–2023 are analysed using an autoregressive distributed lag model and the bounds-testing approach. Real GDP growth represents economic performance, while the budget-deficit-to-GDP ratio and tax-revenue-to-GDP ratio represent the principal fiscal variables. Inflation, the interest rate, and trade openness are included as controls. Augmented Dickey–Fuller tests establish the integration properties of the series, and diagnostic and stability procedures assess model adequacy.

Results: The bounds test indicates a long-run relationship among the variables. The estimated long-run coefficients of the budget deficit and tax revenue are positive and statistically significant. Short-run estimates also show positive contemporaneous coefficients for both fiscal variables, although tax revenue changes vary across lags. Trade openness has a positive long-run coefficient but negative short-run coefficients. The negative and statistically significant error-correction term indicates adjustment after short-run disequilibrium.

Conclusion: The findings show that deficit management and tax revenue mobilisation were associated with Nigeria’s economic performance during the study period. However, the estimates do not establish causality or isolate the effects of specific tax reforms. Policy interpretation should therefore consider the composition, financing, and sustainability of deficits, together with the administrative quality and economic incidence of taxation.