EFFECT OF FISCAL POLICY ON POVERTY ALLEVIATION IN NIGERIA

ABSTRACT

The studyexamined the effect of fiscal policy on poverty alleviation in Nigeria from 2006 to 2020 in Nigeria. Relevant conceptual, theoretical and empirical literature was reviewed. The result revealed that there is a significant effect of fiscal policy on poverty alleviation in Nigeria. The finding of the study also reveals that there is a significant relationship between fiscal policy and poverty alleviation in Nigeria. The findings of the study also reveal that there is a significant effect of public debt and taxation on poverty alleviation in Nigeria. It was therefore concluded that changes in fiscal policy significantly affect poverty alleviation in Nigeria. It was recommended that the Federal government should support value creation in critical sectors of the Nigerian economy which employs large population like agriculture and industry in order to make growth pro-poor.

INTRODUCTION

1.1 Background to the Study

Poverty has become an issue of global dimension with nations striving either to reduce or outright poverty in the economy. The complexity of the phenomenon and its impacts on national economics has attracted the attention of international organizations and agencies with government in different nations embarking on policies aimed at reducing poverty. Consequently, Nigerian fiscal policies especially as regard expenses in the areas that have positive impact on the well being of the poor, have progressively being on the increase over the years (Osuala& Jones, 2014).   Fiscal policy is the means by which a government adjusts its level of spending to monitor and influence a nation’s economy. It is used along with the monetary policy, which the central bank uses to influence money supply in a nation. These two policies are used to achieve macroeconomic goals in a nation. These goals include price stability, full employment, reduction of poverty levels, high and sustainable economic growth, favorable balance of payment, and reduction in a nation’s debt. Nigeria’s potential for growth and poverty reduction is yet to be realized(Ajisafe&Folorunso, 2015).

A key constraint has been the recent conduct of macroeconomics, particularly fiscal and monetary policies. This has led to rising inflation and decline in real incomes. National economic management became a Herculean task as the economy has to contend with volatility of revenue and expenditure (Abubakar, 1995). The widespread lack of fiscal discipline was further exacerbated by poor co-ordination of fiscal policy among the three tiers of government. Also, there is a weak revenue base arising from high-marginal tax rate with very narrow tax base, resulting in low tax compliance. As a result of these and other factors, serious macroeconomic imbalances have emerged in Nigeria(Ajisafe&Folorunso, 2015). A review of these macroeconomic indices shows that inflation has accelerated to double-digit levels in 2000 and 2001.) and continued to increase, and ad at 2010, it was 13.72% ([IMF], 2011). Nigeria is endowed with diverse and huge resources both human and material. However, years of negligence and adverse policies have led to the under-utilization of these resources (Aboyede, 2015), and this has contributed to the increasing unemployment rate in Nigeria. In 2000, the unemployment rate was 13.1%, and 21.10% in 2010. On the average, there has been an upward trend (CBN, 2005, 2006, 2009; Nigerian Bureau of Statistics, 2010).

According to Tanzi and Zee (2017), there are three cardinal indicators of fiscal policy of government expenditure, taxes, and deficits. There have been macroeconomic imbalances of varying degrees in Nigeria. Inappropriate public expenditure and revenue policies, a large deficit in the public sector have been identified by experts as responsible for the macroeconomic disequilibrium (Ajisafe&Folorunso, 2015).

 The problem with past governments in Nigeria has always been non-achieving of the required results. However, results can only be achieved when the vision is clear to all, the goals are broken down into simple manageable success milestones and responsibility delegated on the basis of competence and result periodically reviewed and laced with the implementable fiscal policy framework, (Babalola   &  Aminu, 2011). The transformation Agenda is achievable only if we can break from the past and chart a new course in the implementation process more especially as it concerns fiscal policy management. We must realize that the primary goal of governance is to ensure that the services of a state are properly harnessed towards achieving an optimal quality of life for the people derived from the most feasible outcome of real gross domestic products' measurement in Nigeria otherwise called good economy.

1.2 Statement of the problem

Over the years, there has been expansion in deficit financing and unstable fiscal policy, driven largely by oil prices between 2020 and 2022; revenue and expenditure have increased sharply. This, as typically seen, followed the reduction of expenditures as oil prices substantially decline, though at times with an interval after the decline in oil prices. The implications of such boom-burst fiscal policies include transmission of oil-price volatility to the stable provision of government services. This has added to the failure over the years of public spending and stagnancy in economic growth. Nigeria is a paradox (Caufield, 1996), as the poverty level contradicts her immense wealth. Of worry is the over USD400billion earned from petroleum resource alone in the last three decades and instead of a notable progress in national socio-economic development, she has retrogressed to be one of the 20 poorest countries at the inception of the twenty-first century whereas she was among the richest 50 in early 1970s.The economy has transcended billion naira to trillion naira on the spending side of the budget, yet no infrastructures to develop commerce or social features to raise the welfare of average citizen, whereas she should experience additional or balance on the records of payment. This shows that something is definitely wary with how government prepares its budget or that there is outright misappropriation of resources or on how it has been applied. The issue is becoming more pertinent as policy makers find it perplexing to program, and budget through sectors or channels which resources maximize welfare gains in public expenditure management. Reflecting her economic decline (or even stagnation) is that the GDP, which was $43 billion in 2001 was three times less than that for 1981 translating into per capita income decline from about $1150 in 1981 to about $300 in 2001, $120 in 2012 and $80 in 2015. The per capita income is below half of the sub-Saharan African average and the country has the third highest number of poor people in the world. 63% of Nigerians according to the World Bank, 2006 and CBN, 2011 reports lived below the poverty line of N305 a year in 1985 prices. The government must be interested in finding possible ways that the policy can be made to be more effective and efficient. It is based on this background that this study seeks to examine if fiscal policy measures in Nigeria have had any effect in reducing poverty incidence.

1.3 Objective of the Study

The broad objective of this study is to examine the effect of fiscal policy on poverty alleviation in Nigeria

1. To determine the significant effect of fiscal policy on poverty alleviation in Nigeria

2To examine the significant relationship between fiscal policy and poverty

alleviation in Nigeria

3.To evaluate the effect of public debt and taxation on poverty alleviation in Nigeria

1.4 Research Questions

1. To what extent will fiscal policy have significant effect on poverty alleviation in Nigeria?
2. What are the determinants of government expenditures on economic growth in Nigeria?
3. Is there a significant relationship between fiscal policy and poverty alleviation in Nigeria?

1.5 Research Hypothesis

The following research hypotheses have been formulated for testing this study:

H0:  There is no significant effect of fiscal policy on poverty alleviation in Nigeria.  H1:      There is a significant effect of fiscal policy on poverty alleviation in Nigeria

1. Significance of the Study

The research will be of immense benefit to the following:

The findings of this study will be beneficial to the government as it would enable the government and financial authorizes to devices, modify and adopt a better fiscal policy on the economy,that is policy makers of the central bank of Nigeria who issue guideline governing international trade practices.

The findings of this study will be beneficial to banks especially the commercial banks: importantly, this study would help banks to identify the strength and weakness of each foreign exchange system and hence adopt the policy that suits their activities. This will definitely enhance growth and development of the economy of commercial banks in Nigeria.

The findings of this study will be significant to students of financial and banking who might take a cue from the work done have to further research into the field of exchange rate fluctuations and international trade. Hence, the study will also serve as a guide to future researchers on this subject.

The findings of this study will be significant to the general public who have a right to contribute and informed to the activities of our banking institutions. It is hoped that the, findings and recommendations of this study will be of great importance to the above mentioned group.

Scope of the Study

This study focuses exclusively on fiscal policy and its effect on the poverty alleviation in Nigeria.  The study appraises the impact of fiscal policy actions of the government for the period 1998 to 2020. This period of time is chosen due to the availability of data on the subject matter and the change in the economic structure of Nigeria in the year 1998. The study would make use of key variables such as tax, government debt, and government expenditure.

1.8 Plan of the Study

This research work contains five chapters. The first chapter contains the introduction which provides general information about the study, structure of the research work, objectives, research question, and justification  and Chapter 2 presents the literature review which includes theoretical review, conceptual review with the following subtopics: entrepreneurship, entrepreneurial characteristics and measures, Performance of self-employment  and measures, barriers of entrepreneurial development; and empirical review. Chapter 3 describes the research methodology and it presents the research process and data collection procedure. Chapter 4 is “data analysis and result”; the outcomes of the study, element and process of data analysis and results are presented. Chapter 5 include summary the findings, the benefits of the research and recommendations.