The empirical results of this study show the importance of the composition of different government expenditure and revenue categories in analyzing the effects of fiscal policy variables on private investment which are often masked when only aggregate fiscal variables are used. When total government revenue and expenditure are regressed on private investment, the results revealed no significant relationships. However, different categories of expenditures and revenues have different impact on private investment. Moreover, relationships between specific fiscal categories and investment appear to be nonlinear. In particular, we show that when total revenue and total expenditure are studied together along with their quadratic terms, total revenue shows a decreasing return and significant negative influence on private investment only in quadratic term while total expenditure reveals an increasing but insignificant positive impact both in levels and quadratic term.

The downtrend in public investment, including extensive privatization and the drive toward a smaller economic role of the state in the past two or three decades, has led to the need for the emergence of alternative ways to finance investment. Investment fueled by the private sector is recognized as the catalyst for attaining the twin goals of broad-based sustainable economic development and poverty alleviation, as investment allows for entrepreneurship and employment creation opportunities that increase incomes for the poor and rich alike (Tobias and Mambo, 2007).

The analyses of a majority of countries show that the governments over the years have embarked on diverse macroeconomic policy options to steer the economy on the path of growth and development. One of the policy options readily employed is fiscal policy (Medee and Nenbee, 2011). Also, the debate on the relevance and nature of government intervention to stimulate the economy has again underscored the macroeconomic effects of the fiscal policy. The power of fiscal policy as an instrument for influencing private investment was acknowledged in the works of Hermes and Lensink (2001), Kustepeli (2005), Jongwanich and Kohpaiboon (2008), Hadiwibowo (2010), Afonso and Jalles (2011), Sineviciene and Vasiliauskaite (2012), Menjo and Kotut (2012), and Malik (2013).

Applied Finance Journal, Estimation Techniques, Data Measurement, Determinants, Fiscal Policy, Private Investment, Nigeria, Linear, Nonlinear Analysis.