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With heavy debt burden on developing economies accompanied by their low credit worthiness rating, developing economies often resort to taxes for financing development projects. Raising tax rates and expanding tax bases have become frequent government activities in developing economies. Without dynamic deficit financing policy which takes into cognizance the conflicting arithmetic and economic effect of Laffer curve analysis, financing budget deficit through taxation has remained largely unsuccessful. Perhaps, what was required is to constitute latent factors operating along Laffer curve into major theoretical construct of a deficit financing policy. Therefore, study focused on identifying latent factors influencing the inter-relationship among budget deficit finance, taxes, human capital and macroeconomic indicators. Study spanned across 1970-2015. Data were sourced from Central Bank of Nigeria, National Bureau of Statistics and World Development Indicators. Data were analyzed using exploratory factor analysis. Results indicate that: (1) Tax contributed significantly to budget deficit financing (2)Tax spending and disposable personal income were latent factors influencing the effectiveness of deficit financing (3) Tax spending activated government revenue to contribute significantly to budget deficit reduction (4) Disposable personal income boosted GDP to cause reduction in budget deficit . It was concluded that, with the taxonomy of highly significant factor correlates of tax spending and disposable personal income, a viable deficit financing policy was devised with component tax, budgetary, pricing, credit and macroeconomic policies. It was recommended, inter alia, that developing economies should activate their current deficit financing policies by adapting them to their tax spend and macroeconomic policies.

This study empirically investigated the impact of budget deficit financing on money supply in Nigeria. The study is modeled using a framework of Keynesian theory of budget deficit financing and Richadian Equivalent hypothesis. Due to the homogeneity of macroeconomic variables, it adopted a vector error correction mechanism (VECM) which shows the existence of long run relationship between money supply and indicators of financing budget deficit. The general findings revealed that external source of financing budget deficit; internal source of financing budget deficit as well as debt servicing has a significant effect on money supply for the period under review in the Nigerian context. Base on these findings, the study recommended that external and internal source of financing budget deficit should be encouraged for effective and increased economic stability in Nigeria and not for political reasons. It should be properly channeled to productive sector of the economy that enhances economic stability.

The study investigated the effects of deficit financing on the Nigerian economy using data that covered 41 years (1981 to 2021). Real gross domestic product (RGDP) was the dependent variable, while government budget deficit financing disaggregated into different sources of budget deficit financing represented the explanatory variables. The ordinary least squares (OLS) regression method was used for the tests and analyses. Results established that both non-bank public sources of deficit financing and banking system sources of deficit financing had positive and significant effects on growth. However, non-bank public deficit financing positively led the Nigerian economy and was followed by banking system deficit financing. Both ways and means and external deficit financing sources were negative and insignificant in influencing the Nigerian economy. Ways and means were third while external deficit financing was fourth in descending order of influence on RGDP growth. The study further applied the Augmented Dickey-Fuller (ADF) approach to unit root tests and observed that the variables were integrated at both levels and first difference, leading to the application of the Autoregressive Distributed lag (ARDL) approach to data estimation. The ARDL bounds tests showed that the model specified for the study followed a long-run path and that a long-run relationship existed between the dependent variable and the explanatory variables. The estimation of the long-run and error correction estimation indicated that the independent variables had a time-varying effect on the real gross domestic product of Nigeria. That ARDL estimation of the error correction mechanism also showed that RGDP adjusted rapidly to short-run discrepancies in the long run. Finally, the error correction mechanism showed that external sources of budget deficit financing, non-banking system public deficit financing, ways and means source of deficit financing, gross capital formation, real interest rate and exchange rate, all had robust effects on growth, though with varying directions of influence. Based on the foregoing, the study has recommended deficit financing, more especially non-bank public deficit financing and banking system deficit financing as better options for attaining the much desired rapid and sustainable economic growth of Nigeria as they have been proven to be non-inflationary in practice compared to ways and means and external source of deficit financing over the years.