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Using quarterly time-series data from 1970-2012, this paper examines the responses of budget
deficits to selected macroeconomic fundamentals in Nigeria. Although budget deficit responds
with a positive movement for every one standard deviation positive shock to real gross
domestic product at the early stage, subsequent positive shocks or variations in real gross
domestic product elicit a negative response from budget balance right from the 10th period
down to the 172nd period. Budget deficit shows signs of decline at the initial stage in response
to a positive innovation in real interest rate. However, this response normalized to a positive
one as from the 11th period and remains so all through the periods under review. As more
money is released into the economy, budget deficit responds to this positive shock in money
supply with a continuous decline all through the periods under review. Implicit, but central to
these responses by budget deficit is that private sector investment remains the key to an
economic growth that will not mortgage a country’s future for today’s survival.
