Government Expenditures, Foreign Aid and Remittances: A Review of Income Inequality in Nigeria

Income inequality unequivocally is one of the foremost development challenges facing developing economies. The contradictions bedevilling the reality where rising government expenditures in Nigeria failed to reflect in narrowing income inequality over time prompted this study. This study specified foreign aid and remittances as other sources of expenditures along with government expenditures and employed bounds testing autoregressive distributed lag approach of cointegration to assess the impact they have on income inequality. Findings revealed that, in the long run, capital expenditure has a negative but insignificant effect on income inequality, whereas recurrent expenditure has a positive and significant impact on income inequality, implying that government expenditures in Nigeria have not been directed towards addressing inequality. Foreign aid, in the long run, exhibits a significant negative impact on income inequality. However, remittances did not conform to a priori expectations as it increases income inequality. Recommendations suggest that sustained efforts are required towards overcoming the existing impediments holding back policies and programmes on narrowing inequality gaps.