Balanced Budget, Social Expenditure and Poverty Reduction: Comparative Evidence from Nigeria and the Horn of Africa

This study investigates the comparative effects of balanced budget and social expenditure on poverty reduction in Nigeria and the Horn of Africa from 1993 to 2024. It employs Threshold ARDL (TARDL) as the baseline model and Threshold Nonlinear ARDL (TNARDL) for robustness to capture asymmetric and regime-dependent impacts. Results show strong persistence in poverty, with lagged values indicating gradual convergence to long-run equilibrium. In Nigeria, the debt-service ratio and debt-to-GDP ratios hinder poverty reduction, while fiscal balance is largely insignificant and bond yields support welfare gains. Social expenditure displays mixed effects, proving effective mainly under sound fiscal regimes and interacting positively with prudent fiscal management. In the Horn of Africa, debt variables exert stronger negative effects, and social spending under weak fiscal conditions often exacerbates poverty due to inefficiencies and limited fiscal space. TNARDL shows nonlinear links: social spending cuts and high debt, particularly when finances are tight, increase poverty. Structural break and marginal effect analyses reveal temporal variations, with fiscal reforms amplifying gains and fiscal stress reversing them. The findings underscore that effective poverty alleviation requires targeted social expenditure within credible fiscal frameworks, supported by strong institutions and macroeconomic stability. Regional differences highlight the need for context-specific, coordinated policy interventions.