IOSR Journal of Economics and Finance (IOSR-JEF) e-ISSN: 2321-5933, p-ISSN: 2321-5925.Volume 11, Issue 5 Ser. V (Sep. – Oct. 2020), PP 01-14 www.iosrjournals.org DOI: 10.9790/5933-1105050114 www.iosrjournals.org 1 | Page Symmetric and Asymmetric Effects of Inflation on Government Expenditure in Nigeria 1 Olowofeso, O. E, Forkuo, M. O. Zirra, S. S. Falade, B. S and Modestus, N. Abstract This paper examines the symmetric and asymmetric effects of Nigeria’s inflation on government expenditure using the linear and nonlinear ARDL frameworks and annual data from 1981 to 2018. The result showed robust evidence of symmetric and asymmetric co-integration between inflation and government expenditure. The linear ARDL model and Toda-Yamamoto causality test with structural breaks are robust, performed well and confirmed that Nigeria’s inflation increased government expenditure. We observed that in Nigeria, government expenditure exerted positive impacts on economic output in both short and long run. The paper recommends solving inflation challenges, with the objective of achieving sustainable long-run growth and prosperity, since the structure of the Nigerian economy is such that about 10 per cent increase in inflation translates to higher expenditure by government. Keywords Symmetric, Asymmetric, Linear and nonlinear ARDL, Toda-Yamamoto, Inflation and Government Expenditure. Jel. Classification: G14, G15 --------------------------------------------------------------------------------------------------------------------------------------- Date of Submission: 28-09-2020 Date of Acceptance: 10-10-2020 --------------------------------------------------------------------------------------------------------------------------------------- I. Introduction Inflation is a known problem around the entire globe that both developing and developed nations endure. It threatens all economies and high inflation tends to disrupt and destabilise the functioning of a market economy if not effectively managed. Long-term inflation always leads to long-term economic consequences and "deep scarring" on unemployment numbers, jo lost unless serious reforms are implemented by government to attract foreign direct investment and improve ease of doing business. Inflation in an economy, can be described as a situation where increase in money supply is greater than the production of goods and services. Hamilton (2001), depicted inflation as an economic situation where there is a continuous general rise in the prices of goods and services, this implies that there is excess money in the economy chasing fewer goods and services . Part of the aims of macroeconomic policies is to promote economic growth putting into consideration investment as a major trend, by keeping inflation on the low. There has been a consensus over time amongst economists to keep inflation at a one-digit rate to further improve investment rate amongst nations both at the domestic and international level, thereby improving and sustaining high economic and global growth. Studies have shown that the inflation and economic growth relationship will continue to generate debate in empirical studies because of many fascinating findings. Understanding growth behaviour and its relevance to inflation remains relevant. Inflation in Nigeria is exposed to internal and external shocks and is highly volatile, Obi (2016). Inflation is a key factor that leads to social, economic instability and security challenges (Anyanwu (2011). Empirically, inflation is one of the most observed and tested economic indicator. Its effect on other economic variables, and the economy at large are well known globally. The continuous rise in inflation in Nigeria year on year has affected our economy‟s growth thereby creating negative impact on our development. In late 2003, the inflation rate in Nigeria accelerated from its long consistent slow rate in previous years. This greatly affected food prices and impacted the budget and purchasing power of families, i.e. the real value of money becomes greatly reduced (Anyanwu 2011). Several authors had expressed different views on the impact of inflation on cost of living in Nigeria. One viewpoint shared was that the problem created by the rising prices of goods and services has become something unresolvable by government alone and from time to time creating labour unrest, undue hardship on the populate and thereby reducing government revenue. 1 The views and opinions expressed in this paper are those of the authors and do not necessarily reflect position of the Central Bank of Nigeria. Correspondence Address: Statistics Department, Central Bank of Nigeria, Abuja.