AN EXAMINATION OF THE ROLE OF FISCAL POLICY IN THE DEVELOPMENT OF NIGERIA ECONOMY

CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

The economy of any country, irrespective of its structure is regulated by certain policies developed by the government. Some of these include economic policies, social policies, monetary policies etc. however of all these policies economic policies are most fundamental. Gbosi (2001) The economic factors are cynical because they serve as a foundation for the success of the other policies of government. The constituent element of these economic policies need to be manipulated simultaneously to achieve the desired results.

One of the essential arms of economic policies; the fiscal policy, serve as a means of planning, organizing, controlling and co-ordinating the tempo of activities in the economy (Adeoye, 2006). Fiscal policy is an outgrowth of keynesion economics; its logical analysis suggests that it offers a sure-fire means of stabilizing the economy. The goal of modern Fiscal policy is to achieve economic efficiency and stability (Olawumi and Ayinla 2007). Fiscal policy in itself can be said to be made up of specific course of action involving the formulation of tax structure and expenditure patterns. The effect of taxation covers all the changes in the economy resulting from the imposition of tax system. Expenditure on the other hand, was meant to directly add to the effective demand in the market and generate a high- value multiplies by distributing income to those sectors of the population which had a high managerial propensity to consume.

Before the world war, fiscal policy as a key to economic restructuring and development has been in existence. Many economists had propounded theories as a means to economic prosperity from the destruction of the world war. But in the early 20the century, Lord John Keynes put forward on articulated and constructive solution to solving economic problem.

Lord Keynes in his book suggests that increasing government spending and decreasing tax rate are the best ways to increase aggregate demand as a means of getting hold on the hyperinflation that existed after the world war

In Nigeria, the earliest known forms of fiscal policies were used. It was established as far back as 19th century by the British Administration. Then, the political system became complex due to the existence of the indigenous government under Emirs, Obas, Obongs, Obis etc. along with the colonial masters. In effect, payment for the administration of the country were made to the British government.

The government policy used by the colonial masters on revenue for development was adopted from Dr. Earl Grey report (1852) in which he advocated economic development amongst civilized people. Through self determination under the British supervision. The revenue generation method which was based on duties paid on imported goods was pursued because it avoided disruption of the indigenous social and economic system and its incidence did not directly affect the average Nigerian. Besides, revenue from duties the British government support however, began to dwindle due to increase public criticism in Britain against spreading of Brutish influence in West Africa. 1870, the government supplement stopped and was reduced from N5000 to N2000 to N1000 in 1862, 1863 and 1865 respectively. The expenditure was solely directed towards improving the comfort of the British officers and the maintenance of law and orders. The revenue and expenditure volume also increase considerably well into the 20th century.

Today, fiscal policy as a means of economic development are not developed in isolation. They are formulated and implemented simultaneously with monetary policies, foreign policies by the government with the aim of tackling economic problems.

1.2  Statement of the Problems.

One of the major problems experienced by the Nigeria government is the persistent increase in price of goods and services without corresponding increase productive base. To correct this, the Federal Government curtails the growth of the government spending, raise taxes, especially for middle and upper income earners.

The nations worst socio-economic problem, unemployment, is characterized by low standard of living and poverty. In an attempt to solve the problem of unemployment, the federal government has established non-profit making organizations we the National Directorate of Employment (NDE) which is aimed at assisting the unemployed in search of gainful employment, poverty alleviation programme introduced by the present government. The Global System Mbode telecommunication, GSM, has no doubt created unprecedented employment opportunities for thousands of Nigerians, and the market is opening up by the day.

The Nigeria economy, for about three decides, has witnessed economic retardation. This is due to low productivity, political instability, high rate of population growth arte, rising unemployment, external dependence etc. in view of this, the federal government has adopted various fiscal polices. But for the first time after many years, Nigeria exceeded the growth rate of 5.5 percent as against the projected 5 percent in 2004.

The balance of payment position of Nigeria within the last two decides has been more chronic. For instance, in 1995, Nigeria’s external payment position was a deficit of $2774.4 million, which reduced to $761.0 million in 1996. In order to revamp the economy, government increased traffics on non-essential goods and services that can be produced locally to correct balance of payment deficit, and granting tax reliefs, incentive to local entrepreneur so as to stimulate and promote the local industries and increase experts.

1.3  Objective of the Study

The aim of this research work is to examine the role of fiscal policy in the development of Nigerian economy, the specific objective of this research work include the following:

1.  To evaluate the role of fiscal policy in the development of Nigeria

2.  To examine the extent at which fiscal policy is been implemented in Nigeria.

3.  To determine the impact of fiscal policy in the economic growth of Nigeria.

4.  To evaluate the problems hindering the proper implementation of fiscal policy in Nigeria.

5.  To proffer possible solutions to the problems identified.

1.4  Research Question

Fiscal policy can be valuable tool for economic growth and development if accurately and timely implemented. Therefore by the end of this project the following questions will be answered.

1.  What are the roles of fiscal policy in the economic development of Nigeria?

2.  To what extent is fiscal policy implemented in Nigeria?

3.  What are the impacts of fiscal policy in the economic growth of Nigerian economy?

4.  What are the possible problems hindering the proper implementation of fiscal policy in Nigeria?

1.5 Research Hypothesis

Ho:  Fiscal policies have not helped in the development of Nigerian economy.

Hi:   Fiscal policies have helped in the development of Nigerian economy.

Ho: For some years now, fiscal policies have been properly implemented in Nigeria.

Hi:   For some years now, fiscal policies have not been properly implemented in Nigeria.

1.6 Scope and Limitation of the Study

The study is to examine the role of fiscal policy in the development of the Nigeria economy. Also, the relationship between fiscal policies and other government economic policies, how it is used to fight inflation, unemployment, encourage, investment/production of goods and services and generally encourage private participation in economy building.

This study further highlights the relevance of fiscal policies in the Nigeria economy. Its emphasis, encompasses the component of fiscal policies. Its relationship with other disciplines, how it is used in the economy. It does not however include comparison with other countries since economic structure and system differ and therefore would amount to unfair comparison. Constraints faced during this research work include.

a.  Limitation of cost and time

b.  Restricted access to some classified document.

1.7  Significance of the Study

As a result of unequal importance of a stable and unstable economy to both the public and private sectors, this research work will be of benefit to;

a.   Government for better planning of all policies related to their responsibilities to the economy in particular and the country as a whole.

b.   The professional – who analyze the economic system and whom this study will give an insight into further research and application in their academic fields.

c.    Students – as part of their academic pursuit.

d.   The entrepreneurs and Business men who also need to understand the implications and effects of certain fiscal policies that can have on their fortunes directly or indirectly.

1.8  Definition of Terms.

Statutory Allocation: A fund established by the federal government for pooling of extra budgetary revenue of unexpected income especially from oil exports. It also provided a sources of fund for emergency purpose

Tax: Compulsory payments by individuals corporate organization and partnership into the pursue of government for running of its activities.

Tax Avoidance: A legitimate way of not paying tax by engaging in non-taxable activities.

Tax Evasion: An illegal way of not paying tax, one is liable to pay to the government. It is a criminal offence.

Per Capital Income: A method of assessing the standard of living in any country. It involves determining potential income per person in an economy.

Foreign Policy: Articulated course of action that defines Nigeria’s relationship with other countries and its stand and attitude towards certain international issues.

Budget: An economic tool used by government to estimate its expected revenue and project expenditure over a period of time usually a year.

Marginal Propensity of Investment: That degree of increase in investment due to increase in income.

Inflation Rate: The rate or speed at which the general price level are increasing.

Marginal Propensity to Consume: That degree of increase in consumption level as a result of increase income.