Rising Government Expenditures and Standard of Living in Nigeria: An Ardl Bound Test Approach


 This study investigated the nexus between standard of living proxy by per capital income (PCI) and the rising four components of capital and recurrent expenditure namely: Administration (ADM), Economic Services (ECS), Social and Community Services (SCS), and Transfer Payments (TRP). The study used data from the Central Bank of Nigeria Statistical Bulletin, 2018 and World Development Indicator, 2018 for the period 1981–2018, using Autoregressive Distributed Lagged (ARDL) Bound Test Approach. The study found that rising government expenditures on these four components of both capital and recurrent spending were negatively and insignificantly related to PCI, those that were positively related were also insignificant, indicating low standard of living of Nigerians during the period of study. We concluded that government expenditure did not improve the standard of living of Nigerians significantly. The study recommended that political officers should always ensure integrity and accountability in handling public funds.JEL CLASSIFICATION: F31, C01, C13, C32, C51

In a closed economy popularly known as autarky, there is no government intervention to regulate economic activities. Such an economy is a simple one made up of the household and the business rms.
They engage only in consumption and investment and their gross domestic product (GDP) is represented by C + I. Autarky or closed economy is not an ideal economy hence the need for the inclusion of the third component called government (G). The GDP of a perfect economy is, therefore, made up of C + I + G. The rationale for the intervention of government in an economy is multi-faceted and multi-dimensional. These include provision of essential infrastructural facilities like right roads and bridges, clean portable water, electricity supply, transport and communication system, primary, secondary and tertiary education, health care facilities, maintenance of law and order, maintenance of international relations with other nations, national security and so on.
Effective provision of these essential functions by the government requires huge monetary investment which is partitioned into capital and recurrent expenditures. While capital expenditures are expenditures of government on durable capital goods to provide these governmental functions, recurrent costs are to pay wages and salaries of government workers for the services rendered. Government expenditures include all government consumption, investment and transfer payments. It refers to expenses that government incurs for maintenance in the economy as a whole. Government spending on public services has been on an upward spiral while economic growth has been on a downward spiral in the recent past. For instance, the trend of available data on the growth rate of government expenditure and PCI between Page 3/21 The whole essence of rising government expenditure is to improve the standard of living of the people, to enable the governed realised their full potential through quality education, food, shelter, nutrition, transport, security and so on. Standard of living refers to the level of wealth, comfort, material goods necessities made available to any social-economic class in a geographical area, usually, a country.
According to Morris (1987), the determinants of the standard of living include factors like school and hospital, roads and bridges, water supply, electricity, wages and salaries and all other capital projects and recurrent expenditure of the government. The bene t that individual derives from all the expenditure is measured by per capita income (PCI), which, captures the standard of living. Per capita income is the ratio of real gross domestic product to the total population of the country concerned. Other determinants of the standard of living include revenue, unemployment, in ation rate, interest rate, exchange rate, investment, community and so on. Standard of living is closely related to the quality of life of individuals I a given setting. The problem that triggered off this study is, therefore, the inverse relationship that seems to exist between the standard of living proxy by PCI and rising government expenditure in Nigeria. The expense world-wide is that increasing government expenditure should lead to a rising standard of living, but the reverse is the case in Nigeria, why? To get t to the root of this problem, it is, therefore, the objective of this study to investigate the relationship between public expenditure and standard of living in Nigeria.
The association is derived by estimating the public expenditure pass-through effects to the standard of living. It will be achieved by calculating econometrically, the elasticity coe cients of the various components of recurrent and capital expenditures. These elasticity coe cients will help us to determine the degree of responsiveness of (PCI) standard of living to changes in the various components of public spending. We can as well compare the degree of responsiveness of standard of living to recurrent spending with that of capital expenditure to enable us to make an appropriate policy recommendation.

Review Of Related Literature
Conceptually, total government expenditure is one of the basic components of aggregate demand which directly constitutes government purchases of goods and services meant to improve the standard of living of the people concerned. According to Frank and Bernanke (2001), government expenditures are government purchases by the federal, states and local governments of nal goods and services. Government purchases exclude items like transfer payments, which are payments made by the government for which no current products and services are received in return, it also excludes interest paid on the government debts. In the same vein, Samuelsson and Nordhaus (2005) consider government expenditures as government purchases of goods and services like tanks, road-building equipment as well as the services of Judges and public school teachers. This third component of aggregate demand is determined directly by the government 's spending decisions such that when the government buys a new ghter aircraft, this output instantly adds to the GDP. Theoretically, the following four theories of public expenditures are relevant to this study: Wagner's theory, Peacock and Wiseman theory, the classical theory and the Keynesian theory.
The classical economists, notably Adam Smith, did not believe in any form of government intervention in the economy. He advocated the principle of laissez-faire, where the economy is at a state of equilibrium. He argued further that any disequilibrium is self-adjusting due to the presence of the in-built stabiliser in the system. Therefore, there is no justi cation for government intervention in the economy with its associated public expenditures.
Adolph Wagner  in his early study of the relationship between rising public expenditure and economic growth, stated his law of increasing state activity. Speci cally, he emphasized that the growth of government expenditure (TGEXP) is a function of increased industrialisation and economic development (GDP). Functionally stated: TGEXP = f (GDP), implying that GDP granger causes TGEXP.
Wagner said further that during the industrialisation process, as the real income per capita (RIPC) of a nation increases, the share of public expenditure (PUBEX) of total spending (TGEXP) increases. In functional notation: PUBEX = f (RIPC), implying again that RIPC granger causes PUBEX. The bottom line here is that as far as Wagner is concerned, it is increasing in GDP or per capita GDP that brings about rising public expenditure in any economy.
The great depression of 1929-1933 led Keynes (1936) to consider the reversal of Wagner's theory as the way out of such economic disturbances in the future. Keynes argued in favour of increasing state activities and rising taxation as a means of improving economic growth and hence, the standard of living. If the government increases public expenditure on different public services, the multiplier effects will trickle down to producers, consumers, contractors, workers and everybody as more employment opportunities will be created to reduce poverty level and enhance people's standard of living. The bottom line is that increase public expenditure will granger cause increase economic growth such that PCI = f (TGEXP). This argument is opposed to Wagner's.
Finally, still disgruntled with Wagner's theory, Peacock and Wiseman (1967) studied the relationship between rising government expenditure and economic growth in England and discovered the exact opposite of Wagner's result. They found that government activities are diverse and some of them constitute large scale disturbances in the economy, for which increases in taxation are inevitable. Political disturbances like major wars call for increases in taxation to raise enough revenue to ght the war to ensure the safety of the people and hence improve their standard of living. Peacock and Wiseman discovered that the Government likes to increase taxation to raise revenue to maintain people standard of living, while people dislike increases in taxation. Their argument summarises that it is the increase in government activities that necessitates increases in public expenditures (TGEXP) to improve the people's standard of living (PCI). Functionally stated: PCI = f (TGEXP). This argument is also opposed to Adolph Wagner's theory.
Empirically, hundreds of writers have written their views on these theories of public expenditure about the economic growth of their countries. Some argued in favour of Wagner's theory while some others argued against him but in support of Peacock and Wiseman's approach. While the implication of Peacock and Wiseman and (or) Keynesian assertion is that rising public expenditure leads to increasing economic growth (a positive relationship), Wagner's theory implies a negative correlation. Other studies found both positive and negative relationship among some components of government expenditure and economic growth. Among the recent studies that have seen a positive and signi cant relationship between public expenditure and economic growth are Al Bataineh (2012), Baro (1990) The study covers the period of 1981-2018 (38 years), part of which covers the period of reconstruction after the Nigeria-Biafran civil war of 1967-1970. It also marks in part, period of transition from military to civilian rule and civilian to a civilian administration in the country during which series of elections have been conducted. It also covers the period in which many states and local government have been created in the country. All these constitute a period of rising government expenditures.it is also a period of increasing population gures coupled with an era of oil-boom from which government have sourced adequate revenue to nance her rising costs.

MODEL SPECIFICATION
The model is based on the Peacock and Wiseman theory as well as the Keynesian assertion. The model shows that increase in government expenditures that granger causes an increase in economic growth and per capita income. In a functional notation, economic theory assumes that: PCI = f(TGEXP) (1) Since total government expenditure (TGEXP) is made up of capital expenditure (CEXP) and recurrent expenditure (REXP), then: Econometrically: ∂PCIc = α 0 + ∑α 1 ∂PCIc − 1 + ∑α 2 ∂ADMc − 1 + ∑α 3 ∂ECOSC − 1 + ∑α 4 ∂SCSc − 1 + ∑α 5 ∂TRSFc − 1 + α 1 lnPCIc −1 + α 2 lnADMc −1 + α 3 lnECSc −1 + α 4 lnSCSc −1 + α 5 lnTRSFc −1 + u 1 (4) The unit root results of the series analysed showed that only the PCI was stationary at level meaning it was I (0) or integrated at order zero while the ADM, ECS, SCS and TRSF were all I (1) or integrated of order one. But the combination of variables that were integrated of a different order could still be exhibit longrun relationship. It is on this basis that we run the Johansen co-integration test and found that both the trace test and maximum eigenvalue test results indicated 5 cointegrating equations each. The result is in the appendix. Having established co-integration among the series in this fashion, we proceeded to run the regression of the long-run relationship and obtained the following results: ARDL model. The long-run results in the above table showed that two of the explanatory variables were negatively signed and signi cant. In contrast, the remaining three variables were positively signed but not substantial. An increase in government spending in Nigeria reduced the standard of living of the people in areas of General administration which include defence and internal security. One can feel the reduction in the standard of living of Nigerians generally and particularly in states that were affected by the Boko-Haram insurgency, Kidnapping, herdsmen menace and other anti-social vices. The result shows that 1 per cent increase in government expenditure on general administration led to 16.5 per cent decrease in the standard of living of Nigerians. The Economic services, Social Services and Transfer payment that were positively signed showed that an increase in government spending did not have any statistically signi cant pass-through effect on the standard of living of the people. The situation is right when we considered the poor performances of education, health, agriculture, construction and transport sectors as well as the rising public debt servicing, pension and other contingencies. The graph below shows per capita income (PCIt) in the blue line that is almost parallel to zero range. Government expenditures on all the four components were rising steadily, but PCI or the standard of living could not increase commensurately. Graphically, another problem noticed in the data for PCI is that Nigeria recorded negative values of PCI in 15 years and positive values in 23 years out of the 38 years of study despite the rising public expenditures. A situation in which government expenditure is rising continuously every year and the standard of living of the people remains positively low for some years, and negatively high for some other years, calls for questions. The question arises as to why the standard of living of the people remains low.
. Econometrically: ∂PCIr = α 0 + ∑α 1 ∂PCIr − 1 + ∑α 2 ∂ADMr − 1 + ∑α 3 ∂ECSr − 1 + ∑α 4 ∂SCSr − 1 + ∑α 5 ∂TRSFr − 1 + α 1 lnPCIr −1 + α 2 lnADMr −1 + α 3 lnECSr −1 + α 4 lnSCSr −1 + α 5 lnTRSFr −1 + u 1 (6) The results of the unit root test for variables of the recurrent expenditures revealed that PCI and TRSF payment were stationary at their level form. So they were integrated of order zero meaning that they did not have a unit root problem. But for the other variables such as ADM, ECS and SCS they were forced to become stationary at their rst difference, meaning that they are of order one. A situation like this calls for co-integration test. The Johansen co-integration test was attached to the appendix. The trace test indicated 5 cointegrating equations, while the maximum eigenvalue test indicated one cointegrating equation. To con rm the actual status of the variable we conducted the more robust ARDL bound test, and the result was presented in the table below: Since the F-statistic value of 19.61979 was higher than all the 11 bound values even at 1% critical level, we concluded that the series were cointegrated, long run relationship existed among them. This result corroborated the Johansen co-integration results. The results of the long-run relationship among the variables were presented in the table above. Apart from ADM that was positively related to PCI all other variables were negatively related, and they were all not statistically signi cant. This means increases in government expenditures on this variable led to a decrease in the standard of living of the people. This is against the Keynesian or the Peacock and Wiseman theory of public expenditure that rising government expenditure should improve the standard of living of the people.
The graph below also exhibited the same pattern as that of capital expenditures. While the PCI hoovered around zero lines from the beginning to the end, the recurrent expenditure variables were rising steadily especially useful from 1992 to date. This is a clear indication that increasing government recurrent expenditure did not improve the standard of living of the people. The ECM coe cients showed the speed of adjustment of PCIr back to long-run equilibrium relationship. The deviation from long-run equilibrium path was corrected by 46% over the following year. The fact that all the variables were not statistically signi cant means that they were genuinely exogenous in the model and as such they were responsible for 84% of the fall in the standard of living of Nigerians as the government expenditure was rising.

Conclusion And Recommendations
The results of the model on capital expenditure and that of the recurrent spending appear to be pointing toward the same direction that rising government expenditure did not improve the standard of living of Most roads were death traps; power supply was erratic, the water supply was in poor condition, most hospitals were mere consulting centres, school at all levels were not adequately funded and many more. Only the communication sector has improved tremendously. Hence the positive relationship was not statistically signi cant.
On this note, we concluded that the rising public expenditure in Nigeria has not translated to any signi cant and corresponding increase in the standard of living of Nigerians. From the two graphs above the curve for PCI, which is a proxy for standard of living did not rise above zero lines with the rising expenditures. This demonstrates that the standard of living of Nigerians is still at the low ebb while government expenditure is skyrocketing on an annual basis without any signi cant improvement to show for it. This is counter-intuitive and opposed to the Keynesian or Peacock & Wiseman theory of rising public expenditure.
We recommend that government at all levels should desist from corruptible practices. The government o cials should not engage in the award of in ated contracts, demand for kick-backs and sharing of contract funds. Despite the high budget and substantial oil revenue, the standard of living is still low., an indication of mismanagement of resources. The government should decrease the current tide of corruption that has eaten deep into the fabric of all Nigerians at all levels. Public funds should be attached to speci c projects. Political o ce holders should always account for how they spent the previous allocations before they can collect the next one; Nigeria political system should be demonetised, and stiffer (death) penalty should be recommended for looters of the treasury.

DATA AVAILABILITY
The data that support the ndings of this study are available from authors upon reasonable request. Trend in PCI TOTAL CAPITAL EXPENDITURE