ABSTRACT

This study has attempted to investigate the relationship between fiscal deficit and private domestic investment using Nigerian data from 1981 – 2014. The study employed OLS technique to estimate the relationship and the Engel and Granger two step methods to establish the long run dynamics. It was discovered that private domestic investment is positive and statistically significant in explaining government fiscal deficit and there exist a long run relationship between both variables. It was thus recommended that Government should encourage domestic investors through giving incentives like lower interest rate in order to boost investment as this will lead to improvement in the fiscal deficit position in Nigeria.