The Impact Of Fiscal Policy On Economic Performance In Nigeria (1981-2016)

The Impact Of Fiscal Policy On Economic Performance In Nigeria (1981-2016)

Abstract

The study examines the impact of financial policy on profitable performance in Nigeria between 1981 and 2016. financial policy is represented by government total expenditure, government total profit and direct duty. A model was developed in which profitable growth( deputy as profitable performance) is expressed as a function of government total expenditure, government total profit, direct duty, capital( represented as gross capital conformation) and labour( represented as employment rate). The study covered a 36- time period ranging from 1981 to 2016. The econometric ways of Augmented Dickey Fuller test, Cointegration test and Error Correction model estimation.

Three propositions were reviewed videlicet the classical,neo-classical and the endogenous growth model.

The study concludes that financial policy was incompletely effective on profitable growth( surrogate of profitable performance) in Nigeria between 1981 and 2016.

The study suggest that; Government should enhance investment in productive expenditure including expenditure on education, health, manufacturing, mining and husbandry and also insure that finances meant for development of these sectors are duly employed; Government should strive to reduce expenditure on recreational, artistic and religious affairs and other functions like political executive charges in order to stabilize the frugality; Applicable blend of financial and financial programs that would effectively stabilize the frugality should be pursued; Government should consider restructuring its expenditure pattern by allocating further finances towards productive expenditure similar as capital systems; Government should consider employing its profit capabilities by expanding its profit base via effective and effective taxation system and diversification of Nigeria’s profit base by tapping into solid minerals and agrarian capabilities.

Chapter One

Preface

Background to the Study

financial policy has traditionally been related to the use of taxation and public expenditure to impact profitable conditioning of a country. The perpetration of financial policy is principally embedded in the budget of the government. The most vital aspect of a public budget is its use as an instrument to manage an frugality( Omitogun & Ayinla, 2007). financial policy is a deliberate action of government which entails the use of government spending, taxation and borrowing to control the pattern of profitable conditioning, position of affair growth, employment, affectation and employment( Ugwanta, 2014). Over the last decade, the growth impact of financial policy has generated large volume of theoretical and empirical literature. profitable growth is considered is a crucial macroeconomic ideal of a country and that increase in government expenditure on socio- profitable and physical structure encourage profitable growth as well as expenditure in health and education stimulates the rate of growth of public affair( Barro, 1990). Expenditure on architectures similar as road, power, communication, road, etc, reduces product costs, raises private sector investment and profitability of enterprises therefore enhancing profitable growth. Barro( 1990) supported this assertion that increase in government expenditure fosters profitable growth. Again, another academy of study argued that adding government expenditure inhibits profitable growth. This academy of study maintained that advanced situations of government expenditure tend to reduce the aggregate performance of an frugality. likewise, in an attempt to finance adding expenditure, government tends to increase levies and/ or borrowing which might affect her spending geste . Advanced income dutyde-motivates individualities from working for long hours or indeed searching for jobs, which in turn reduces income and aggregate demand( Maku, 2015). also, advanced profit duty tends to increase cost of product and reduces investment expenditure and profitability offirms.However, especially from banks, in order to finance expenditure, If government increases borrowings.

The debate on the effectiveness of financial policy as a tool for stimulating growth and development remains unanswered given disagreeing results of once studies. Oshinowo( 2015) observed that there are two sides of literature regarding the part of financial policy in stimulating profitable growth. The first view is that government’s support for knowledge, exploration and development, productive investment, conservation of law and order and provision of public services can stimulate growth in short- run and long- run. Again, the alternate view is that governments, especially in developed husbandry, are regulatory and less effective and as a result they tend to stymie growth if they get involved in the productive sectors of the frugality. financial policy is perceived to destabilize profitable growth by distorting the effect of duty and hamstrung government spending. In addition, propositions live on the effect of financial policy on profitable performance issues. Khosravi and Karami( 2010) stated that sympathizers of the classical academy of study believed that the effect of government spending is temporary and not effective particularly in the long- run when prices acclimate and affair is at optimal position. In analogous tone, endogenous proponents proposed that government expenditure and taxation have temporary and endless effect on profitable growth. To this end, the study contributed to the argument by examining the effect on financial policy on profitable performance in Nigeria.

Statement of Problem

Over the times, Nigeria’s eventuality for sustainable profitable growth and development has remained unattained. This is relatively disheartening that despite the enormous mineral and mortal coffers the country owns coupled with adding trend of public spending time in- time out, the frugality has been performing below anticipation. Policy judges, economists and other professionals have attributed the poor performance of the Nigerian frugality to corruption, bureaucracy, political insecurity, lack of responsibility and translucency, poor governance and lack of visionary leaders that will direct the frugality to the path of growth. Asaju, Adagba and Kajang( 2014) added that the misutilization of financial and financial programs and complications in the abdications ofnon-market friendly tools constituted major challenges to realizing Nigeria’s financial objects. The public has remained hamstrung in terms of service delivery, infrastructural decay, high rate of loose practices and lack of responsibility and probity in the operation of public programs and coffers shows the depth of the incompetency of the public sector in Nigeria that’s supposed to lead the frugality through financial programs. These have redounded to high rate of severance, rising affectation, fall in growth, dwindling real inflows and high rate of poverty. It can be unequivocally stated that financial policy has not been operative in the accomplishment of macroeconomic objects of full employment, price stability, balance of payment equilibrium, effective resource allocation, uneven redivision of income and wealth, exchange rate stability and profitable growth.

also, there has been serious contention in literature as to which policy is more applicable for the pursuit of macroeconomic stabilization in developing countries. sympathizers of the monetarist academy of study reported that financial policy exerts lesser influence on profitable performance and it should be embraced by developing husbandry. On the other hand, the Keynesians academy of study posited that financial policy has lesser influence on profitable performance and should be espoused by developing husbandry. still, both financial and financial programs haven’t been meetly used to goad bettered performance of the Nigerian frugality( Ugwanta, 2014).

Exploration Questions

The questions central to this study are

To what extent has government total expenditure told the profitable performance of Nigeria?

What’s the magnitude of government total profit on the profitable performance of Nigeria?

To what extent has direct levies told on the profitable performance of Nigeria?

Objects Of The Study

The broad ideal of the study is to examine the effect of financial policy on the profitable performance of Nigeria. The specific objects are

To determine the extent to which government total expenditure has contributed to profitable performance of Nigeria.

To explore the extent to which government total profit has contributed to profitable performance of Nigeria.

To assess the extent to which direct levies has contributed to profitable performance of Nigeria.

Significance of the Study

A number of studies have been conducted to examine the impact of financial policy on profitable performance( profitable growth) in Nigeria. There’s agreement from empirical once findings that financial policy has positive impact on profitable growth in Nigeria. still, the magnitude of the impact has been contentious. Scholars similar as Audu( 2012) and Agu, Idike and Okuwo( 2014) stated that financial policy has robust impact on the Nigerian frugality. On the negative, scholars similar as Onwe( 2014) and Abdulrauf( 2015) contended that financial policy has negligible impact on the frugality of Nigeria. This still has created a gap in literature. The study thus examine the magnitude of the impact of financial policy on profitable growth in Nigeria by extending the compass of once studies in recent times, because the ages 2014, 2015 and 2016 has not been covered in literature.

Compass Of The Study

The study examines the impact of financial policy on profitable performance in Nigeria between 1981 and 2016. The financial policy instruments considered are government total expenditure, government total profit and direct levies. also, profitable performance is streamlined to profitable growth( deputy as real gross domestic product).

Description Of Crucial Terms

financial Policy

This refers to the optional power of the government to control and regulate an frugality through government spending and taxation.

Profitable Performance

This refers to the extent to which an frugality has fulfilled its macroeconomic objects. profitable performance can be caught on through price stability, full employment, profitable growth and soundness of foreign account. still, the study used profitable growth as an indicator of profitable performance.

Government Total Expenditure

This refers to the total spending of government over a period of time. Government total expenditure is the totality of intermittent and capital expenditure over a period of time.

Government Total profit

This refers to the total quantum of finances realized by the government of a country. Government total profit in Nigeria can be astronomicallysub-divided into profit from oil painting andnon-oil sources.

Direct levies

This refers to a mandatory tax assessed by the government on the particular income of individualities and gains of companies and diligence.