Modern development theories, particularly Keynesian and Neo-Keynesian perspectives, advocate for the deliberate unbalancing of government budgets through fiscal deficits due to their potential expansionary effects on economic growth and development. This approach is especially relevant for less developed countries, which often face inadequate savings, insufficient capital formation, underdeveloped infrastructure, and a private sector incapable of driving growth and industrialization independently. In such contexts, government interventions through expansionary fiscal policies, including budget deficits, are considered necessary to stimulate savings, build infrastructure, and enhance the productive capacity of the economy.

Fiscal deficits occur when government expenditures exceed revenues within a given period, typically a fiscal year, and represent a deliberate policy instrument aimed at promoting economic growth. Financing these deficits involves various strategies, including domestic and external borrowing, money creation, utilization of accumulated reserves, asset sales, proceeds from privatization, and allocations from current government revenues. By employing these mechanisms, governments aim to sustain macroeconomic stability while fostering investment, employment, and industrial development.

This study examines the role of fiscal deficits in stimulating economic growth in Nigeria using a disaggregated Vector Autoregressive (VAR) analysis. The research highlights the theoretical underpinnings of deficit financing, evaluates its practical application in the Nigerian context, and investigates the effectiveness of fiscal deficits in achieving desired growth outcomes. Findings suggest that, when properly managed and targeted, fiscal deficits can serve as a powerful tool for accelerating economic growth, although mismanagement may exacerbate inflationary pressures and undermine fiscal sustainability. The study provides critical insights for policymakers on designing deficit-financing strategies that balance short-term growth objectives with long-term fiscal stability