A Disaggregated Impact Analysis of Public Capital Expenditure on Income Inequality in Nigeria

ABSTRACT: The role of fiscal stimulus in achieving redistributive goal of equitable income distribution has remained a source of controversy in development literature and policy debates. This paper therefore, contributes to the ongoing debate by investigating the disaggregated impact of capital expenditure on income inequality in Nigeria between 1981 and 2019. Specifically, this paper applied autoregressive distributive lag (ARDL) model to examine the short and long term effects of capital expenditure on economic, social and community services as well as administration on income inequality measured by Gini index. The results of the unit root test show that the variables are mixed integrated. It was further observed from the bounds cointegration test result that long run relationship exists among the variables. The ARDL estimates reveal that capital spending on community and social services has significant negative effect on income inequality in both short and long run. This implies that investment in education and health are important for equitable distribution of income. At the same time, capital expenditure on economic services has significant negative impact on income inequality in the long run. The implication of this finding is that investment in agriculture, road, construction and telecommunication creates opportunity for reducing income inequality among the population. However, public expenditure on administration is not statistically significant run in explaining changes in income inequalityin both short and
long. To this end, this paper recommends that that governments at all levels should prioritize investments in critical social and economic infrastructures to optimize their redistribution effects in flattening the curve of income inequality.
KEYWORDS: Capital expenditure, economic services, community and social services, administration, income inequality and Nigeria