Abstract
Empirical studies on the growth-expenditure nexus are inconclusive, and research has produced opposing findings on the Wagner Law. Testing frameworks that reverse causality have further complicated interpretation and have created conceptual ambiguities and empirical gaps in the conceptualisation of this relationship in the Nigerian context. This paper explores the validity of the Law of Wagner in Nigeria by analysing the correlation between sectoral economic growth (agriculture, industry, and services) and the country’s recurrent expenditure between the years 1981 and 2019. The analysis, based on time-series data of the Central Bank of Nigeria and utilising the Vector Error Correction Model (VECM) and Granger causality tests, confirms that the data are cointegrated but provides no support that sectoral growth is the cause of recurrent expenditure. The agricultural GDP has a strong negative long-run correlation with recurrent spending, whereas industry and services have positive correlations without short-run causality. These findings reject the Law of recurrent expenditure in Nigeria by Wagner, which implies that fiscal growth is more of an autonomous and institutionally driven affair than growth impelled. The research suggests a shift in fiscal policy to capital investment and the infrastructure sector to boost productivity and realign government expenditure with sustainable economic development. This study is original in providing fresh information on the Nigerian macroeconomic literature, as well as providing a policy-relevant approach to fiscal efficiency by combining sectoral disaggregation with a strong causality test.