AN ECONOMETRIC ANALYSIS OF THE IMPACT OF FISCAL POLICY ON NIGERIA ECONOMY

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The economic policy of any country, be it developed, developing, even the underdeveloped countries requires some set of fundamental goals and objectives. Any attempt to undermine these presupposed fundamental aims, will in no small measure contribute to little or no tangible success achieved by the economy of the said country a However, proper developmental policies coupled with some set of targets formulated and well-implemented guarantees balanced and steady growth of the economy which consequently reflects positive changes in the social, cultural, political and economical lives of the people. It is worthy of note to say, that the emphasis given to the aims and objectives predetermined to be achieved, varies from country to country, but all will be included in the overall economy policies of the concerned country.

Although, there are various policies or means by which government tends to restructure, re-direct and maintain the continuous and steady growth development in the economy. The commonest among those policies are fiscal policy, Exchange rate policy, External trade policy, monetary policy, External debt management policy, public sector reform policy etc.

For the purpose of this research work, emphasis is placed to limit the study only on fiscal policy and its effects on real sector. Fiscal policy refers' to the manipulation of expenditure resources and taxation power by the government for the purpose of managing the economy. It is a measure on combination of measures designed to adjust and control the economy by regulating taxes and government finance.

The fiscal policies objectives are however achieved through various means. These means range from reduction in government and operating a budget surplus for effect if the federal budget is balanced increase or decrease in taxation, internal and external borrowing, printing money" drawing from the country's past reserve and so on. This is aimed at influencing economic activities in a desired direction and to achieve some specified macro-economic policy objectives. For the purpose of this research work, emphasis is placed to limit the study only on fiscal policy and its effects on real sector.

1.2    STATEMENT OF PROBLEM

It is an undisputable fact that the main objectives of any country is to achieve growth in the real sector which transcend into improvement in the standard of living of the people. To this end, efforts are made to maintain effectiveness of its fiscal policy. This study, however, seeks to address the effect of fiscal policy on Nigeria economy and how it has enhanced development of Nigeria economy.

1.3    AIM AND OBJECTIVES OF THE STUDY

The purpose of the study is to determine the impact of fiscal policy on Nigeria economy.

1.    To examine impact of fiscal policy on the general prices level

2.    To determine effect of fiscal policy on the level of money supply

3.    To exchange the role of fiscal policy on the government expenditures

1.4     RESEARCH QUESTION

In order to achieve the objective of this research study, the research study will attempt to provide answers to the following research questions.

§  To what extent is fiscal policy implementation have been able to affect the economy of Nigeria?

§  Does the fiscal policy affect the level of money supply?

§  To what extent is time lag in fiscal policy implementation detrimental in affect the real sector in Nigeria?

§  What are the best way in which the fiscal policy implementation will affect the real sector economy positively?

1.5    RESEARCH HYPOTHESIS

1.      Ho: there is no significant relationship between fiscal policy on the general price level

Hi:    there is significant relationship between fiscal policy on the general price level

2.      Ho: there is no significant relationship between fiscal policy and money supply

Hi:    there is significant relationship between fiscal policy and money supply

3.      Ho: there is no significant relationship between fiscal policy and the government expenditure

Hi:    there is significant relationship between fiscal policy and the government expenditure

1.5    RESEARCH METHODOLOGY

The research method to be used is the econometrics analysis to test for the relationship between dependent and independent variables. This will involve multiple regression analysis. Secondary data will be employed which is sources through CBN publication F.O.S e.t.c the model specification are as follows;

:. GDP = = bo + blPRC + b2xMSC + b3GEX + b4TAX+ u

Where,

Y= GDP (Gross Domestic product at market price); Dependent variable.

X1 = Price level: Independent variables

X2 = Money supply; Independent variables

X3 = Government expenditure: Independent variable

X4 = Tax: Independent variable

bo = constant term

b1 = Coefficient of parameter X1

b2 = Coefficient of parameter X2

b3 = Coefficient of parameter X3

b4 = Coefficient of parameter X4

u = Error of stochastic term

SOURCES OF DATA:

For the purpose of this research, Secondary data will be utilized which will cut across 30 years i.e. from 1980 to 2009, the major sources of data and information will be from Central Bank of Nigeria (CBN) various publications and statically bulletin of ministry of finance.

1.7    SIGNIFICANCE OF THE STUDY

It is never an overstatement to say that fiscal policy is one of the most effective policy measures used in directing an economy. However, the main significance of this study is that, the research work after completion will be useful to individuals, firms, parastatals and the Nigerian economy in its entirety.

1.8    SCOPE AND LIMITATION OF THE STUDY

Scope: The study will cover the trend in debt procurement from time to time of oil boom of the 1980's to 2009. The study will also cover consequences of debt on the economy as well as debt management strategies that have been used by debt manager, their failure and further recommendations. The study will likewise cover some growth theories in explaining the concept of economic growth.  Furthermore, the problem of fiscal policy will also be reviewed in the study.

Limitation: this study is limited to Nigeria economic alone. Also 20year data will used to really know the effect of fiscal policy on Nigeria economic on the economic and how it has enhanced the economic development.

Time & Cost: Is very precious, this study will be limited to available information within the reasonable time also the problem of finance in. this regard.

1.9     THE DEFINITION OF TERMS/CONCEPT

GDP-Gross Domestic Product

CBN- Central Bank of Nigeria Statistical Bulletin

F.O.S- Federal Office of Statistic

1.10          ORGANIZATION OF THE STUDY

This study will comprise of five chapters. Chapter one will be the introduction part which will comprise of what exactly the topic is about. Chapter two will be the literature review to show the difference and diversity of view one subjects and to act as a guide, Chapter three will consist of structural composition of the effectiveness of fiscal policy of Nigerian economy. Chapter four will illustrate the research methodology. Data analysis and interpretation of the results. Chapter five, summarizes the findings, recommendation and conclusion.