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Garch-Var Model for Total Revenue Generated and its Impact on Fiscal Sustainability in Adamawa State, Nigeria |
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PP: 1-15 |
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Author(s) |
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E. Torsen,
A. Kenan,
D. B. Usman,
B. Z. Reuben,
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Abstract |
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| In this study, we investigated the total revenue generated in the study area using Garch-var model. The allocation of resources among federal, state, and local administrations is crucial for Nigerias governance and fiscal sustainability. States receiving 80% of their financing from the federal government are particularly susceptible to economic collapse. To estimate fiscal risks associated with erratic revenue in Adamawa State, value-at-risk technique was used. The stationarity of the series was confirmed using the Augmented Dickey-Fuller (ADF) for the data collected over thirteen (13) years. The mean model, originating from ARIMA models, was used to fit the TRG dataset. The best model was ARIMA (0,1,1) (1,0,1) (12), with a minimum AIC of 269.2782. Revenue volatility was estimated using Generalized Autoregressive Conditional Heteroskedasticity (GARCH), with the worst annual loss over the last five years (2018-2022) not exceeding 27.39%, 24.67%, 23.71%, 22.19%, and 21.07% of the total income generated, respectively. The Internally Generated Revenue (IGR) benchmark for 2023 was determined using GARCH-VaR, a more powerful predictive tool than the Normal-VaR approach. Recommendations include using the revenue volatility model as a guide for revenue planning and projection to reduce the risk associated with excessive reliance on federal funding. |
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