THE IMPACT OF FISCAL POLICY ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This study is on the impact of fiscal policy on economic growth of Nigeria (2005 – 2014). The objective of the study includes: To control inflation in the Nigerian economy, to examine the impact of fiscal policy in the economy, to control the internal and external shocks that causes instabilities in the economy, to achieve some micro economy goals, to show the relationship between fiscal policy, gross domestic product and price in the Nigerian economy within the chosen time frame, to recommend some economic policies to the  government based on the findings, to examine the effectiveness of fiscal policy, if it has created any positive impact on the output and price in the economy. The related literature were induced and data was collected through questionnaire and other primary sources of data. It was discovered after the data interpretation and analysis that the researcher was able to examine the extent of the internal and external problems or shocks can be solved by government making and implementing good and effective policies, government should adopt tight fiscal and easy monetary policies as well as easy policy in order to achieve economic stabilization.

TABLE OF CONTENTS

Title page…………………………………………………………..i

Approval page…………………………………………………….ii

Dedication…………………………………………………………iii

Acknowledgement………………………………………………..iv

Abstract……………………………………………………………..v

Table of contents………………………………………………….vi

CHAPTER ONE…………………………………………………..1

1.0   INTRODUCTION……………………………………………1

1.1   Backgrounds of the study………………………………..1

1.2   Statement of the problem…………………………………5

1.3   Purpose of the study……………………………………….8

1.4   Research question………………………………………….9

1.5  Statement of Hypothesis…………………………………..10

1.6   significance of the study………………………………….12

1.7.  scope of the study…………………………………………13

1.8   definitions of terms………………………………………..13

CHAPTER TWO……………………………………………………15

2. LITERATURE REVIEW……………………………………15

2.0   Review of related literature………………………………15

2.1. Brief Introduction…………………………………………..17

2.2   Models and theories relevant to research questions.19

2.2.1 Causes of fiscal policy distress in government measures……………………………………………………………19

2.2.2 Institutional factors………………………………………21

2.3   current literature based on the variables of theories, models and question…………………………………….22

2.3.1 Suggested Resolutions…………………………………22

2.3.2 Management…………………………………………….24

2.3.3 The fiscal policy transmission mechanism………25

2.4   Summary of literature review……………………….26

CHAPTER THREE……………………………………………29

3.0   Research methodology………………………………29

3.1. Introduction……………………………………………..29

3.2   Design of the study……………………………………29

3.3   Area of the study………………………………………..30

3.4. Population of the study…………………………………30

3.5   Sample of the study………………………………………32

3.6   Instrument for data collection…………………………..33

3.7   Validation of the instrument…………………………….34

3.8   Distribution and retrieval of the instrument…………35

3.9   Method of data analysis…………………………………..35

CHAPATER FOUR……………………………………………….36

4.0   DATA PRESENTATION AND ANALYSIS………………36

4.1   Presentation and interpretation of data……………….39

4.2   Test of Research question………………………………..48

4.3   Discussion of the findings………………………………..49

CHAPTER FIVE…………………………………………………..51

5.0   Findings, conclusion and recommendations…………51

5.1   Summary of findings………………………………………51

5.2   conclusion…………………………………………………..54

5.3   recommendation……………………………………………55

5.4   limitation of the study…………………………………….54

5.5   suggestion for further research………………………..55

References………………………………………………………….57

Appendix A………………………………………………………….58

Appendix B………………………………………………………….59

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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

The term “fiscal policy” was known before the great depression in income and expenditure (balance budget). The  treasury was in control of government resources. The classical then believed that deficit is not ideal and then came depression, which was signified by serious unemployment, acute poverty and high inflating.

Due to this problem or situation Keynes advocated fiscal policy deficit (Jhingan, 1983) fiscal policy is a powerful instrument or apparatus of stabilization. Fiscal policy seeks to regulate consumption investment or in other to regulate aggregate demand through government expenditure, taxation and debt management. In this way, it raises the level of employment attack in inflation and it leads to economic growth for example, fiscal policies may effect the rate of capital information and capital formation leads to growth in productivity and thus economic growth.

The evolution of fiscal policy in Nigeria is anchored in economic, political, constitutional social and cultural development which has influenced the nature and character of inter-governmental fiscal relations. As the Nigerian economy progressed from a unitary state to a federal state, more decentralized and there were changes in fiscal arrangement.

In Nigeria, as in most developing nations, economic stabilization assumes new dimensions. It cannot mean stability of employment since the unemployment level is unacceptability at such low level nor can it mean stable prince at current level of inflation where the value of money is low.

Economic stability can be seen as either a short run or a long run affair. In the short run economic stabilization involves clampening fluctuation in business activity, for example, stagnation and secular inflation, increasing the level of aggregate employment and avoid secular stagnation and inflation, increasing the level of aggregate employment and avoiding deficits in balance of payment. In long run, it allows for the structural changes, which may take place within the economy and concentrates on limiting inflation to that inherent, In these structural changes and level of employment. It involves controlling and level and around which the permissible fluctuation might occur.

It would otherwise be stated that  economic stabilization in the Nigeria context calls for more radical measures that will raise productivity, reduces price and create greater employment opportunities. Fiscal System of any country describes the institutional frame work with which the government undertakes its financial operation in the form of tax standing and borrowing.

The choice of an appropriate policy strategy for handling the instability of the economy is not an easy one. The structural economist would favour a stabilization policy geared to the total  elimination of identified bottle needs through long-term structural adjustment measures. To them, discretionary policy fail. Since it will be moving one economic stabilization strategy adopted is that of short-term.

Stabilization measures in form of fiscal policy preference is often given to fiscal policy since it can readily influence macro-economy aggregates without the added task of worrying error each of the individual micro-economic units within the economy.

1.2   STATEMENT OF THE PROBLEM

Fiscal Policy aims at controlling the activities of banks and other financial sectors in the economy, but inspite of the key position this control occupies in the economy, care had not been taken to really explain and exploit the trend of events in the economy. So as to come up with the appropriate regulation and deregulation policy.

It is either that this policy (ies) are not right or that they are poorly implemented as much expected result is yet to be found. For now there is instability in the economy and the inflationary rate is very high.

Nigeria Public expenditure accounts for over 20 percent public of the Cross Domestic Product (GDP) Adubi and Obioma, 1999). Nigerian government was able to sustain these high levels of public expenditure in 1970s and late 1980s because of the windfall gains from petroleum products which it enjoyed during the period.

Fiscal policy is a measure that government uses through taxation in revenue programmers’ and expenditures to produce desirable effects that is to achieve some Macro economic goals.

Internal problem or shock a0nd external problems or shock are the major difficulties attached to the control of economic growth, and can be death with when government inputs policies that will guild it.

Economist have been interested in the effects of fiscal and monetary policy and fiscal policy I the economy. Recent studies have analysed the impact of market structure in profitability in the banking industry. In general, some of these studies have concluded that market structure dose not significantly influence profitability. In contrast, most studies of pricing policy have found that the price of bank. Services increases with the degree of monopoly in the banking sector.

Much has been done to ascertain the impact of fiscal policy of the central Banks (CBs) on the profitability of commercial banks in Nigeria. A strong and healthy bank uncountable means a strong and healthy economy in view of this, there is a need to evaluate the impact of fiscal policy of central Bank of Nigeria 9CBN) on Profitability of Nigeria commercial Banks.

Given the above identified problems this study seeks to examine the various reforms and the success as well as their failures.

Major Internal problems are the stability of public policy changes in expenditure and acceleration in Nigerian while the external problems or shocks are war evolution, rate of population growth and migration, bigger markets, technological changes and the openness of economy have been identified.

Fiscal policy and the above identified problems this study. Seeks to examine the various reforms and the successes as well as their failures.

1.3   OBJECTIVES OF THE STUDY.

The objectives of this study includes:-

1. To control inflation in the Nigeria economy.
2. To examine the impacts of fiscal policies on the economy.
3. To control the internal and external shocks that causes instabilities in the economy.
4. To achieve some Micro economics goals in the Nigeria financial system.
5. To show the relationship between fiscal policy gross demostic products and price in the Nigeria economy within the chosen time frame.
6. To recommend economic policies to the government based on findings.
7. To examine the effectiveness of fiscal policy, it is has created any positive impact on the output and price in the economy.

1.4   RESEARCH QUESTIONS

1. How is fiscal policy a government measures in controlling inflation, taxation and generating income/revenue?
2. Can this instrument (fiscal policy) effectively handle the stability in Nigeria economy?
3. Can internal and external problems or shocks be solved by government making policies
4. What will the fate of the Nigeria economy without these control measures.
5. Can taxation reduce the excess circulation of money in the economy as well as inflation and fluctuations?

1.5   STATEMENT  OF HYPOTHESES

The following hypotheses will guide the study for further test of  chapter four of the project.

1. H_O: Fiscal policy is not a government measures in controlling   inflation taxation and generating revenue?

H₁:  Fiscal Policy is a government measure in controlling inflation, taxation and generating revenue.

2. H_O: Fiscal policy instrument can effectively handle stability in Nigeria economy.

H₁:  Fiscal policy instrument can not effectively handle stability in Nigeria economy.

3. H_O: Internal and external problems or shock can be solved by government making policies.

H₁:  internal and external problems or shock can not be solved by government making policies     .

4. H_O: Nigerian’s economy can progress without these control measures.

H₁:  Nigerian’s economy cannot progress without these control measures.

5. H_O: Taxation can reduce the excess circulation of money as well as inflation.

H₁:  Taxation can not reduce the excess circulation of money as well as the inflation and fluctuation.

1.6   SIGNIFICANCE OF THE STUDY

Understanding the impact of fiscal policy on economy growth is a thing of high significance. The and significance of this study of the study, it justified on the grounds that it will expose, examine and find out the impact of federal government fiscal operations on economic growth in Nigeria for the period under analysis. Some other beneficiaries of the study includes: students, the federal inland revenue services (FIRS), the business men and women and the entire body living under the Nigeria authority and states.

How the people mentioned above will benefit from this work; the student will describe the cost and again employed for fiscal policy describe the cost and against employed for fiscal policy decreases unemployment, impact a higher AD on Economy. For the business men, it will help them travel/transfer to places without carrying cash (cashless policy) to secure their life/lives.

1.7   SCOPE OF THE STUDY

The scope of this study covers the period between 1986 to 2014 since the impact fiscal policy on economic growth in Nigeria is pivot of this study. The work has been narrowed down into the money control, fluctuation and control of inflation in the Nigeria economy mainly by the central Bank of Nigeria.

1.8   DEFINITION OF TERMS

Some of the key words commonly used in this project work are defined and listed as follows:-

FISCAL POLICY –    Fiscal policy is a powerful instrument or apparatus of stabilization. It seeks to regulate aggregate demand. Through government expenditure, taxation and debt management.

SECULAR STAGNATION –       This is a condition of negligible or no economic growth in a market based economy. When per capital income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of savings longer-time investment.

INTERNAL PROBLEM/SHOCK –     These are the instability of public polices, change in expenditure and expectation acceleration and these are the major internal problem in Nigeria.

EXTERNAL PROBLEM/SHOCK      – These are the solution, the rate of population growth and migration, bigger market, tec

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