the impact of fiscal policies in stabilization of the nigerian economy

8/20/2019 THE IMPACT OF FISCAL POLICIES IN STABILIZATION OF THE NIGERIAN ECONOMY

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THE IMPACT OF FISCAL POLICIES IN STABILIZATION OF THE

NIGERIAN ECONOMY

BY


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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The growth and stabilization of the Nigerian economy has not been

stable over the years as a result, the country’s economy has

witnesses so many shocks and disturbances both internally and

externally over the decades. Internally, the unstable investment and

consumption patterns as well as the improper implementation of

public policies, changes in future expectations and the accelerator

are some of the factors responsible for it. Similarly, the external

factors identified are wars, revolutions, population growth rates and

migration, technological transfer and changes as well as the

openness of the country’s Nigerian economy are some of the factors

that could affect the implementation of fiscal policy.

The cyclical fluctuations in the country’s economic activities has led

to the periodical increase in the country’s unemployment and


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inflation rates as well as the external sector disequilibria (Gbosi,

2001). In other words, fiscal policy is a major economic stabilization

weapon that involves measure taken to regulate and control the

volume, cost and availability as well as direction of money in an

economy to achieve some specified macroeconomic policy objective

and to counteract undesirable trends in the Nigerian economy

(Gbosi, 1998). Therefore, they cannot be left to the market forces of

demand and supply as well as other instruments of stabilization

such as monetary and exchange rate policies among others, are

used to counteract are problems identified (Ndiyo and Udah 2003).

This may include either an increase or a decrease in taxes as well

as government expenditures which constitute the bedrock of fiscal

policy but in reality, government policy requires a mixture of both

fiscal andmonetary policy instruments to stabilize an economy

because none of these single instruments can cure all the problems

in an economy (Ndiyo and Udah, 2003).


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The Nigeria economy started experiencing recession form early

1980s that leads to a depression in the mid 1980s. This depression

continued until early 1990s without recovering from it. As such, the

government continually initiated fiscal policy measures that would

tackle, stabilize and overcome the dwindling economy. Drawing the

experience of the great depression, government policy measure to

curb the depression was in the form of increase government

spending (Nagayasu, 2003). According to Okunroumu, (1993), the

management of the Nigerian economy in order to achieve

macroeconomic stability has been unproductive and negative hence

one cannot say the Nigeria economy is performing. This is evidence

in the adverse inflationary trend, government fiscal policies,

undulating foreign exchange rates, the fall and rise of gross

domestic product, unfavourable balance of payments as well as

increasing unemployment rates are all symptoms of growing

macroeconomic instability. As such, the Nigeria economy is unable

to function well in an environment because there is lowcapacity


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utilization attributed to shortage in foreign exchange as well as the

volatile andunpredictable government fiscal policies in Nigeria

(Isaksson, 2001).

1.2 STATEMENT OF THE PROBLEM

It is an established fact that market mechanism cannot solely

perform all the economic functions in a country; and as such public

policy like fiscal policy is required to stabilize, correct, guide and

supplement the market forces. Fiscal policyis one of such policies

that government uses to correct market imperfections and failure.

In Nigeria, governments at various times had used these policies to

stabilize and manage the economy with a view to achieving desired

macroeconomic objectives such as promoting employment

generation, ensuring economic stability, maintaining price stability

and balance of payment viability, ensuring exchange rate stability

and maintaining stable economic growth. The fiscal policy thrust

used in manipulating the economy depends on the objectives that

need to be achieved at any time period. Government intervention in


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the economy through fiscal policy has been to manipulate the

receipt and expenditure sides of its budget in order to achieve

certain national objectives. The reality however is that often, there

have been wastages, some spending has been politicized, and there

has been high level misappropriation, mismanagement and

corruption. However, the researcher is examining the impact of

fiscal policies in stabilization of the Nigeria economy.

1.3 OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1.To examine the impact of fiscal policies in stabilization of the

Nigeria economy.

2.To examine the factors influencing the proper implementation

of various fiscal policies in Nigeria.

3.To identify the consequences of the implemented fiscal policies

by the government of Nigeria.

1.4 RESEARCH QUESTIONS


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1.What is the impact of fiscal policies in stabilization of the

Nigeria economy?

2.What are the factors influencing the proper implementation of

various fiscal policies in Nigeria?

3.What are the consequences of the implemented fiscal policies

by the government of Nigeria?

1.6 SIGNIFICANCE OF THE STUDY

The following are the significance of this study:

1.The outcome of this study will be a useful guide for the

government of Nigeria, stakeholder in the financial sector and

the general public on how fiscal policies can be used as a tool

for the stabilization of the Nigerian economy.

2.This research will also serve as a resource base to other

scholars and researchers interested in carrying out further

research in this field subsequently, if applied will go to an

extent to provide new explanation to the topic.

1.7 SCOPE/LIMITATIONS OF THE STUDY


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This study on the impact of fiscal policies in stabilization of the

Nigeria economy will cover various fiscal policies that has been

adopted by the government of Nigeria considering its effect on the

stabilization of Nigerian economy.

LIMITATIONS OF STUDY

Financial constraint- Insufficient fund tends to impede the

efficiency of the researcher in sourcing for the relevant materials,

literature or information and in the process of data collection

(internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this

study with other academic work. This consequently will cut down

on the time devoted for the research work.

REFERENCES

Gbosi, A.N.Contemporary Macroeconomic Problems and Stabilization

Policies in Nigeria, (2001), Antovic Ventures, Port Harcourt.


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Gbosi, A.N.Banks, Financial Crisis and the Nigerian Economy

Today, (1998), Corporate Impression Publishers, Owerri.

Isaksson, A. Financial liberalization, foreign aid and capital

mobility: Evidence from90 developing countries, Journal ofInternational Financial Markets, Institutions and Money, 11(2001),

309-338.

Nagayasu, J. The efficiency of the Japanese equity market,IMF

Working Paper, No. 142 June, (2003).

N.A. Ndiyo and E.B. Udah, Dynamics of monetary policy and

poverty in a small open economy: The Nigerian experience,Nigerian

Journal Economics and Development Matters, 2(4) (2003), 40-68.Okunrounmu, T.O., Fiscal policies of the federal government

strategies since 1986,Central Bank of Nigeria, Economic and

Financial Review, 31(4) (1993), 340-350.

CHAPTER TWO


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REVIEW OF RELATED LITERATURE

2.1.Introduction

The growth and development of the Nigerian economy has not been

stable over the years as a result, the country’s economy has

witnesses so many shocks and disturbances both internally and

externally over the decades. Internally, the unstable investment and

consumption patterns as well as the improper implementation of

public policies, changes in future expectations and the accelerator

are some of the factors responsible for it. Similarly, the external

factors identified are wars, revolutions, population growth rates and

migration, technological transfer and changes as well as the

openness of the country’s Nigerian economy are some of the factors

responsible. The cyclical fluctuations in the country’s economic

activities has led to the periodical increase in the country’s

unemployment and inflation rates as well as the external sector

disequilibria (Gbosi, 2001). In other words, fiscal policy is a major

economic stabilisation weapon that involves measure taken to


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regulate and control the volume, cost and availability as well as

direction of money in an economy to achieve some specified

macroeconomic policy objective and to counteract undesirable

trends in the Nigerian economy (Gbosi, 1998). Therefore, they

cannot be left to the market forces of demand and supply as well as

other instruments of stabilization such as monetary and exchange

rate policies among others, are used to counteract are problems

identified (Ndiyo and Udah 2003). This may include either an

increase or a decrease in taxes as well as government expenditures

which constitute the bedrock of fiscal policy but in reality,

government policy requires a mixture of both fiscal and monetary

policy instruments to stabilize an economy because none of these

single instruments can cure all the problems in an economy (Ndiyo

and Udah, 2003). The Nigeria economy started experiencing

recession form early 1980s that leads to a depression in the mid

1980s. This depression continued until early 1990s without

recovering from it. As such, the government continually initiated


12/61

policy measures that would tackle and overcome the dwindling

economy. Drawing the experience of the grate depression,

government policy measure to curb the depression was in the form

of increase government spending (Nagayasu, 2003). According to

Okunroumu, (1993), the management of the Nigerian economy in

order to achieve macroeconomic stability has been unproductive

and negative hence one cannot say the Nigeria economy is

performing. This is evidence in the adverse inflationary trend,

government fiscal policies, undulating foreign exchange rates, the

fall and rise of gross domestic product, unfavourable balance of

payments as well as increasing unemployment rates are all

symptoms of growing macroeconomic instability. As such, the

Nigeria economy is unable to function well in an environment were

there is low capacity utilization attributed to shortage in foreign

exchange as well as the volatile and unpredictable government

policies in Nigeria (Isaksson, 2001),


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2.2.THEORETICAL FRAMEWORK

Fiscal theory of the price level(FTPL)

The price level is defined as the inverse of the value of money: how

much money it takes to buy a given basket of goods. By contrast,

the FTPL is about the inverse of the value of government debt. This

is explained particularly clearly in Cochrane (2005). As Buiter

(2002) points out, there is no reason in general for the value of debt

and the value of money to coincide. To the extent that households

anticipate a government default, they may trade government debt at

a discount, without necessarily affecting the value of money. This

criticism is particularly serious when the central bank adopts a

monetary policy that rules out monetization of government debt. As

an example, consider the case in which the central bank adopts a

constant money supply rule and does not engage in open market


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operations. In this case, there is no link between government debt

and money, and no reason why a maturing T-Bill with a face value

of $1,000 should trade at par with ten $100 notes issued by the

central bank. Maturing debt and money will only trade at par if

fiscal policy is run in such a way that the government will have the

appropriate amounts of money to repay its debt, independently of

the price level: this requires real tax revenues to adjust to prices,

violating the central assumption of the FTPL. The same criticism

does not apply when the monetary policy of the central bank allows

unlimited monetization of debt, as in the case of an interest rate

peg. In this case, the central bank commits to exchange arbitrary

amounts of money and one-period government debt at a fixed price.

This commitment is not inconsistent with a second commitment, to

redeem all maturing government debt at par, offering money in

exchange. Since the central bank has unlimited ability to produce

money, a government default on nominal debt is now ruled out. In

this case, the FTPL is simply a version of a commodity money


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standard; money, as well as other government liabilities, is backed

by the present value of future government surpluses, just as the

value of Microsoft shares is backed by the present value of Microsoft

profits (this is the main example in Cochrane 2005). While the

original treatment of the FTPL was ambiguous (in particular,

Woodford (1995) considers the case of the FTPL under a money

supply rule), it is now widely agreed that the FTPL requires an

implicit or explicit institutional commitment to prevent a

government default (or excess repayments by the government)

through an appropriate (de)monetization of debt. In this form, the

FTPL bears some similarities with the ‘unpleasant monetarist

arithmetic’ of Sargent and Wallace (1981). Under the monetarist

arithmetic, a fiscal deficit imbalance will trigger inflation, because

seigniorage revenues are necessary to prevent the government from

defaulting. Even though monetization of government debt plays a

central role in both theories, there are important differences.

According to the unpleasant monetarist arithmetic, seigniorage


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revenues (which are part of the present value of surpluses in

equation Present value of primary fiscal surpluses as of time ) will

have to respond to changes in Pt to ensure that the government

budget constraint holds; hence, equilibrium occurs through

adjustments in the right-hand side of Present value of primary

fiscal surpluses as of time . In the FTPL, seigniorage revenues on

the monetary base play at best a minor role. Under the FTPL, it is

the price level that responds to shocks to spending and taxes; its

fluctuations cause the real value of debt (the left-hand side of

Present value of primary fiscal surpluses as of time) to appreciate or

depreciate to reach an equilibrium.

The FTPL is based on the assumption that equation Present value of

primary fiscal surpluses as of time holds only at an equilibrium.

The critics of the FTPL view instead Present value of primary fiscal

surpluses as of time as a constraint that forces the government to

match the real value of debt with an appropriate present value of

primary surpluses, for all conceivable levels of prices. To better


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understand the issue, it is useful to note that Present value of

primary fiscal surpluses as of time looks identical to the inter

temporal budget constraint of any household in the economy: it is

sufficient to re label Bt as the nominal liabilities of the household,

and the right-hand side as the present value of its non-asset

income, net of consumption. In the case of a household, there is

universal agreement that Present value of primary fiscal surpluses

as of time should be viewed as a constraint: given any value of Pt,

the household must choose a consumption/income plan that

satisfies Present value of primary fiscal surpluses as of time . The

critics of the FTPL argue that the government should be no different

from any other agent. Unlike the previous criticism, the heated

debate that has emerged on this point has not resulted in

widespread agreement. As Bassetto (2005) pointed out, the

disagreement stems from a fundamental weakness in the tools that

have been used to study this problem. Both critics and supporters

of the FTPL adopt the dynamic competitive equilibrium framework.


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This framework is designed for environments populated by many

small players; in the presence of a large and potentially strategic

player, such as the government, it offers little guidance in

distinguishing between equilibrium conditions, and constraints that

the large player(s) faces under any circumstances, even away from

an equilibrium. While there are many applications for which this

ambiguity is not important, a proper account of the distinction is

essential to study the uniqueness or multiplicity of equilibria, which

is the object of interest in the case of the FTPL. To overcome this

difficulty, Bassetto (2002) explicitly describes the economy as a

game, where the actions available to all households and the

government at any point in time are clearly spelled out. Bassetto

shows that the basic version of the FTPL, with an unconditional

commitment to a sequence of primary surpluses, is not a valid

government strategy in a well-specified game, at least if the

sequence includes a primary deficit at any point in time. Intuitively,

a primary deficit is only possible if the government is able to raise


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revenues through borrowing. Since lending is voluntary (as opposed

to payment of taxes), any plausible game includes the possibility

that private agents will not lend; if this circumstance arises, the

government is forced to a fiscal adjustment. Bassetto then proves

that there exist other government strategies that lead to a unique

equilibrium price level that is determined from taxes and spending

alone. These strategies paint a very different picture of the

conditions under which a FTPL arises: whereas the traditional view

relies on the government setting taxes and spending exogenously,

with no regard for the evolution of debt, the strategies described by

Bassetto require the government to strongly react to incipient ‘debt

crises’ by accumulating larger surpluses in present value. A small

empirical literature (e.g. Canzoneri, Cumby, and Diba 2001,

Cochrane 2001) has looked into the usefulness of Present value of

primary fiscal surpluses as of time in accounting for the evolution

of prices. The results are not very favorable; in particular, when a

government runs an unexpected deficit, the real market price of its


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debt increases, suggesting that households expect that the

government will make up for the shortfall through increased

surpluses in the future. If future surpluses were exogenous and

fixed, Present value of primary fiscal surpluses as of time would

suggest that an unexpected deficit should have its primary effect

through inflation, by depressing the real market value of debt. While

these observations cannot refute the central claim of the FTPL, that

Present value of primary fiscal surpluses as of time is only an

equilibrium condition, they call into question the usefulness of the

FTPL to explain actual inflationary episodes. Recent research into

monetary policy has looked for interest rate rules that ensure price

level determinacy independently of the fiscal policy of the

government; this has weakened interest in the FTPL. Though no

issue as controversial as the FTPL has emerged since, this recent

analysis is still open to ambiguous distinctions between policy rules

that should capture government behavior in all possible scenarios

and equilibrium relations across the endogenous variables of an


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economic system. A more complete analysis awaits the development

of new tools that are as simple and powerful as dynamic competitive

equilibrium, and yet able to appropriately capture the special role of

the government.

2.3.CONCEPTUAL FRAMEWORK

The FTPL and the cashless economy

Expositions of the FTPL have occasionally been conducted in

models that use Woodford’s (2003b, Ch. 2) “cashless limit” economy,

i.e., an economy in which advances in payments technology have

made private agents’ demand for real money balances negligible, so

that virtually none of the economy’s transactions are carried out


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using money. We argue here that these two model features—FTPL

and the cashless economy—together represent a combination that

is unlikely to generate useful or genuinely interesting conclusions.

FTPL results and cashless-economy setups have both been

advanced as departures from orthodox analysis, but the former are

actually less striking in the presence of the latter. The FTPL has

been invoked as nonstandard precisely because it produces a

different explanation for inflation from the quantity theory of

money. The quantity theory describes the inflation process in terms

of the adjustment by private agents to increases in the nominal

money stock that are excessive in relation to their demand for real

balances. The role that contractions in the agents’ demand for

money make to sustained inflations in this account is confined to

contractions that are an endogenous response to expansions of

supply. The FTPL, by contrast, provides a channel whereby ongoing

contractions in agents’ demand for money occur endogenously, even

in unchanged supply conditions. It is, therefore, hardly a good basis


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for demonstrating the novelty of the FTPL to adopt a modeling

environment—the cashless limit—in which agents’ demand for real

money balances has already been eliminated exogenously. The

conflict between promoting the FTPL and using cashless-economy

assumptions can also be illustrated through an analogy with

Ricardian equivalence. As we noted in the introduction, imposing

conditions which usually lead to satisfaction of Ricardian

equivalence is the appropriate starting point for promoting the

FTPL. For then the importance of fiscal policy (in particular, of

government debt) can potentially be demonstrated in an

environment that typically minimizes the importance of fiscal policy

for macroeconomic developments. By the same token, the relative

unimportance of monetary policy in the FTPL is ideally

demonstrated in a standard model in which orthodox results on the

importance of monetary policy for price level determination would

usually prevail. To use a cashless-economy setup, by contrast, is to

start with a model that is nonstandard from the point of view of


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monetary analysis, so violations of standard results are less

compelling. In particular, results that highlight the importance of

the stock of government debt for price level determination are not

dramatic in an environment in which the financial stock typically

relevant for price level dynamics— money—has been removed from

the economy, or has been deprived of its traditional medium-of-

exchange properties.

Fiscal policy in Nigeria

The past two decades in Nigeria have witnessed a considerable

increase in government indebtedness. Beyond the issue of poor

quality of public expenditures, the ability to save windfalls from

excess crude oil proceeds by the government remains critical in

ensuring that government expenditure is maintained at a

sustainable level and consistent with the absorptive capacity of the

economy (Baunsgard, 2003). Evidence reveals that there was a

substantial increase in government spending, primary deficit and

debt in Nigeria between 1991 - 2005. The oil windfall between 1991


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- 1992 was followed by rapid growth in government spending with

an average of about 21 percent of GDP during that period. However,

as the oil market weakened in subsequent years, oil receipts were

not adequate to meet increasing levels of demands and expenditures

as being reinforced by political pressures, were not rationalized.

Although the democratically elected government in 1999 adopted

policies to restore fiscal discipline, the rapid monetization of foreign

exchange earnings between 2000 - 2004, another era of oil windfall,

resulted in large increases in government spending. In 2005 alone,

the government spending alone increased to 19 percent of GDP

from 14 percent in 2000. Extra ordinary budgetary outlays, not

initially included in the budget increased. According to Baunsgard

(2003), experience in Nigeria illustrates the difficulties of

implementing fiscal policy in an environment with highly volatile

revenue flows. Over the years, there have been a strong deficit bias

and procyclically in fiscal policy, driven largely by oil prices 1991-

1992 and 2000-2002, revenue and expenditure have increased


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sharply. This as typically seen followed the scaling back of

expenditures as oil prices substantially decline, though at times

with a lag. 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 neither the

years of public spending, facilitating the diversification nor growth

of the economy.

Fiscal Policy and Economic Growth

Fiscal policy is generally believed to be associated with growth, or

more precisely, it is held that appropriate fiscal measures in

particular circumstances can be used to stimulate economic growth

and development (Khosravi and Karimi, 2010). There is an upsurge

of empirical literature aimed at unraveling the relationship between

various measures of fiscal variables and economic growth. In this

endeavour, cross section, panel and time series data have been


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employed. Attempts to underpin the growth relationship are

undermined by conceptual statistical and estimation concerns

(Amanja and Morrisey, 2005; Mansouri, 2008; Bell, Brunori, Green,

Wolman, Cordes and Qadiri, 2005). Nijkamp and Poot (2002)

conducted a metaanalysis of past empirical studies of fiscal policy

and growth and found that in a sample of 41 studies, 29% indicate

a negative relationship between fiscal policy and growth, 17% a

positive one, and 54% an inconclusive relationship. One of the

contributory factors to these varied empirical results is the measure

used to proxy for fiscal policy. Table one shows various empirical

studies on the relationship between fiscal policy and economic

growth.

2.4.EMPIRICAL REVIEW

Recent research into monetary policy has looked for interest rate

rules that ensure price level determinacy independently of the fiscal


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policy of the government; this has weakened interest in the FTPL.

Though no issue as controversial as the FTPL has emerged since,

this recent analysis is still open to ambiguous distinctions between

policy rules that should capture government behavior in all possible

scenarios and equilibrium relations across the endogenous

variables of an economic system. A more complete analysis awaits

the development of new tools that are as simple and powerful as

dynamic competitive equilibrium, and yet able to appropriately

capture the special role of the government.

Fiscal policy is undoubtedly one of the most important tolls used by

government to achieve macroeconomic stability of the economy of

most developing countries (Siyan and Adebayo, 2005). Therefore,

the attempt to empirically test the efficacy of monetary and fiscal

policy in an economy dates back to the pioneering studies of

Friedman and Meiselman (1963) who empirically investigated the

responsiveness of general price level on economic activity

represented by aggregate consumption to change in money supply


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and autonomous government expenditure using ordinary simple

linear regression model to estimate the US data from 1897-1957. In

their conclusion, they found out that a stable and predictable

casual relationship existed between demand and money supply

while no such significant relationship was observed for government

expenditure (Bogunjoko, 1997). Hence, there was a stable aggregate

and money supply for the period. According to Nwaobi (1997), in his

article unit root of variables {Dickey-Fuller (DF) test and Augment

Dickey-Fuller (ADF)} tests confirm that the model assumed the

irrelevance of anticipated monetary policy for short-run deviations

of domestic output from its natural level. Therefore, only the

unanticipated components of external price changes in the level of

external economic activity leads to the deviation of domestic output

from natural and observed that monetary tightening once

anticipated in an economy would have no effect on real domestic

output in the short-run. Also, Anyanwu (1996) in his study of

Nigeria’s urban unemployment analyzed the monetary and fiscal


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policy implication Nigeria’s full employment level. However, on the

other hand, all the fiscal variables significantly reduced

unemployment in Nigeria. This except one was highly significant in

reducing the level of unemployment generation in Nigeria than

monetary policy measure. Also, Ajisafe folorunso (2001) in their

study found out that monetary policy rather than fiscal policy

exerts a great influence on economic activity in Nigeria. They

therefore observed that the emphasis of government fiscal actions

on the economy has led to a greater distortion of the Nigerian

economy. Odedokun (1998) in his study also confirms that the

growth of financial aggregates in real terms have positive impact on

economic growth of development countries, irrespective of the level

of economic development attained.


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The Classical economists argue that fiscal policy cannot, in the long

term, affect the level of real output (GDP). In opposition to this

assertion, the Keynesian economists argue that fiscal policy can

affect the level of output. (Anderton 2010). The importance of fiscal

policy as an instrument of economic development was first

envisaged by Keynes in his General Theory wherein he showed that

the total national income was an index of economic activity and

brought out the relation of economic activity of total spending

(Emanuele 2003). Hence fiscal policy could be used to influence

economic development proxied by per capita income as this study

would confirm. Previous researchers conducted several studies

regarding the impact of fiscal policy on economic development

through output. However, mixed results were observed due to the

models, countries, research methods and data employed. The

principle conclusion of a working paper by Thomas (2012) on

effectiveness of fiscal policy is short run effectiveness of fiscal policy

turns on the theoretical model of the macro economy that is


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adopted. That is because fiscal policy works through AD, and the

impact of AD on the real economy depends on macroeconomic

perspective. The implication is the fiscal policy debate is ultimately

a debate over macroeconomic theory. No theoretical paradigm is

completely satisfying. Comparison of paradigms spotlights the

critical assumptions each makes; provides a better basis of

understanding; and can help guide and improve policy. Empirically,

researches conducted in the developed nations include those of

Alexiou (2009) which provides evidence on the relationship between

economic development and government spending, using panel data

methodologies for seven transition economies in South Eastern

Europe from 1995 to 2005. The study revealed significant results.

More specifically, the evidence generated indicates that four out of

the five variables used, including fiscal policy (government spending

on capital formation) in particular had positive and significant

impact on economic growth. Yasin (2003), exploiting the

inconclusive evidence of some earlier studies, re-examined the effect


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of government spending on economic growth/development using

panel data set from Sub-Saharan Africa. The estimated model

derived from an aggregate production function and had government

spending, foreign assistance for development and trade-openness

explicitly specified as input factors. Fixed and random-effects

techniques were used to estimate the model. The results from both

estimation techniques indicate that government spending, trade-

openness and private investment spending all have positive and

significant effect on economic growth and development. Amanja and

Morrissey (2005) used autoregressive distributed lag (ARDL) model

and ordinary least square methods on time series data to analyse

the relationship between fiscal policy and growth in Kenya between

1964 -2002. The study reveal that productive expenditure has

strong adverse effect on growth while there was no evidence of

distortionary effects on growth of distortionary taxes. Government

investment was found to be beneficial to growth in the long run.

Adefeso et al (2010) examined the impact of fiscal policy on


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economic growth in Nigeria from 1970 to 2005, using the error-

correction technique to test the predictive ability of the endogenous

growth model. The findings of the study were consistent with earlier

empirical findings in other countries, which revealed that

productive government expenditure has positive effect on economic

growth. In a study to examine the growth effects of public

expenditure for a panel of 30 developing countries over the 1970s

and 1980s, Bose et al (2007) finds that the share of government

capital expenditure in GDP is positively and significantly correlated

with economic growth, while current expenditure is observed to be

insignificant. At the disaggregated level, government investment in

education and total expenditures in education are the only outlays

that were observed to be significantly associated with growth if the

budget constraint and omitted variables are taken into

consideration. Employing the ordinary least squares estimation

technique, Muritala and Taiwo (2011), investigate the effect of

recurrent and capital expenditure on GDP and finds that both


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components of government expenditure have significant positive

effects on the GDP. Using different regression models for time series

data covering the period 1990-2006 on Jordan, Dandan (2011)

finds that government expenditure at the aggregate level has

positive impact on the growth of GDP. By regressing GDP on capital

and recurrent expenditure (after deflating data on all variables by

the consumer price index, CPI), Sharma (2012) finds an

insignificant negative relationship between the capital expenditure

and recurrent expenditure, and the real GDP for the Nepalese

economy, attributed to mismanagement and embezzlement of public

funds by government officials and political appointees. Modebe et al

(2012), investigate the impact of recurrent and capital expenditure

on Nigeria’s economic growth using multiple regression analysis for

data covering the period 1987 to 2010 and find that the impact of

both components of expenditure was statistically insignificant,

though the impact of recurrent expenditure was positive and that of

capital expenditure, negative. However, the findings cannot be relied


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upon as the diagnostic statistics prove the estimated model to be

invalid. In another study to examine the relative effectiveness of

monetary and fiscal policies in Nigeria, Aigheyisi (2011), employs

the method of cointegration and error correction using quarterly

data spanning the period 1981Q3 to 2009Q4 and finds that total

government expenditure (acting as proxy for fiscal policy) positively

affected real gross domestic product (RGDP) in the short run.

Burrows (1974) made us to know, while explaining Keynes full

income determination model, that there is a negative relationship

between tax and economic development since tax will reduce

disposable income and hence consumption. Summarily, from the

above, it was discovered that increase in government recurrent

spendings will positively affect output and hence per capita income

and development which is in line with economic theory. When

government investment rises (spendings on construction of roads,

dam, bridges, building of schools, hospitals etc.), it engages workers

and thereby reduces unemployment rate and government


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expenditure on unemployment benefits, increases aggregate income,

economic activities and welfare and thus economic development is

realized.

CHAPTER THREE

RESEARCH METHODOLOGY


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3.0 INTRODUCTION

This chapter states the various methods used in research, as well

as the population of the study, and sampling techniques used in

determining the sample size for the research. How data was

collected and analysed is also discussed in this chapter.

The main objectives of this research were achieved through

quantitative methods, as inferential statistics were used to

measure the level of accuracy and validate responses from the

respondents in accordance to the objectives of the research.

3.1 STUDY AREA

Abuja, the capital of Nigeria was the study area for this research.

It is located in the centre of Nigeria, within theFederal Capital

Territory (FCT). Abuja is aplanned city, and was built mainly in

the 1980s. It officially became Nigeria's capital on 12 December

1991, replacingLagos, though the latter remains the country's

https://en.wikipedia.org/wiki/Federal_Capital_Territory,_Nigeriahttps://en.wikipedia.org/wiki/Federal_Capital_Territory,_Nigeriahttps://en.wikipedia.org/wiki/Planned_cityhttps://en.wikipedia.org/wiki/Lagoshttps://en.wikipedia.org/wiki/Planned_cityhttps://en.wikipedia.org/wiki/Lagoshttps://en.wikipedia.org/wiki/Federal_Capital_Territory,_Nigeriahttps://en.wikipedia.org/wiki/Federal_Capital_Territory,_Nigeria


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most populous city. At the 2006 census, the city of Abuja had a

population of 776,298, making it one of the ten most populous

cities in Nigeria. Abuja has witnessed a huge influx of people into

the city; the growth has led to the emergence of satellite towns

such asKaru Urban Area,Suleja, Gwagwalada, Lugbe, Kuje and

smaller settlements to which the planned city is sprawling. The

unofficial metropolitan area of Abuja has a population of well

over three million and comprises the fourth largest urban area in

Nigeria, surpassed only byLagos,Kano andIbadan.

3.2 RESEARCH DESIGN

The research design used for this study was the descriptive

research design. Since data characteristics were described using

frequencies and percentages, and no manipulations of data or

variables were necessary, the researcher chose this research

design. The researcher discarded other alternatives such as the

causal and explanatory research designs, because accurate

findings and data analysis may not be achieved.

https://en.wikipedia.org/wiki/Karu_Urban_Areahttps://en.wikipedia.org/wiki/Sulejahttps://en.wikipedia.org/wiki/Lagoshttps://en.wikipedia.org/wiki/Kanohttps://en.wikipedia.org/wiki/Ibadanhttps://en.wikipedia.org/wiki/Karu_Urban_Areahttps://en.wikipedia.org/wiki/Sulejahttps://en.wikipedia.org/wiki/Lagoshttps://en.wikipedia.org/wiki/Kanohttps://en.wikipedia.org/wiki/Ibadan


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3.3 POPULATION OF THE STUDY

The population for this study are employees of the Central Bank

of Nigeria, Abuja. The population figure for the study was 32

respondents, comprising of CBN officials from various

departments such as operations, finance, administration etc.

The reason for choosing The Abuja office is that it has a fairly

large number of CBN Officials that can fairly reflect the true state

of TSA in Nigeria economy.

3.4 POPULATION SIZE AND TECHNIQUE

Since the population for the study was not large, and data could

be collected from all the respondents, the researcher adopted the

census sampling technique to successfully complete the study.

All 32 respondents were used for this study.


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3.5 DATA COLLECTION METHOD

Data for this study was collected from the respondents through

the use of questionnaires. Questionnaires were shared to all 32

respondents of the organization, and field surveys through

responses to questions in the questionnaire served as the main

source of primary data for this study.

Other information were collected from text books, journals and

other secondary sources of data.

3.6 DATA ANALYSIS

Various analytical tools and software such as pie charts, bar

charts, tables, and Statistical Package for Social Science (SPSS)

software were used in analysing data for this study.

Data collected were analysed using frequencies and percentages.

These frequencies and percentages enabled the researcher to

clearly represent true data characteristics and findings with a

great deal of accuracy. Interpretation and analysis of data was


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also used to describe items in tables and charts used for this

study.

3.7 LIMITATION

Since this study is a descriptive research, validation of data

characteristics and variables described maybe limited to some

extent as other statistical tools such as arithmetic mean,

variance, standard deviation, and the central limit theorem were

not applied to further prove the accuracy of findings in this

study. The researcher only used descriptive statistical tools such

as frequencies and percentages to describe data characteristics

and findings.


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CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

This chapter is devoted to the presentation, analysis and

interpretation of the data gathered in the course of this study. The

data are based on the number of copies of the questionnaire

completed and returned by the respondents. The data are presented

in tables and the analysis is done using the Pearson correlation

test.


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BIO DATA OF RESPONDENTS

Table 1 sex of respondents

Frequency Percent Valid Percent

Cumulative

Percent

Valid male 16 50.0 50.0 50.0

female 16 50.0 50.0 100.0

Total 32 100.0 100.0

Source: field survey, February, 2016.

Table 1 above shows the gender distribution of the respondents used for this

study.

16 respondents which represent 50.0percent of the population are male.

16 respondents which represent 50.0percent of the population are female.

Table 2 age grade of respondents


Cumulative

Percent

Valid below 20 year 3 !." !." !."

21#30 year 6 1$.$ 1$.$ 2$.1

31#"0 year $ 25.0 25.0 53.1

"1#50 year 10 31.2 31.2 $"."

51#60year 5 15.6 15.6 100.0

Total 32 100.0 100.0


Table 2 above shows the age grade of the respondents used for this study.


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3 respondents which represent 9.4 percent of the population is below 20yrs.6

respondents which represent 18.8percent of the population are between 21-

30yrs.8 respondents which represent 25.0 percent of the population are

between 31-40yrs.10 respondents which represent 31.2 percent of the

population are between 41-50yrs while the remaining 5 respondents which

represent 15.6 percent of the population are between 50-60yrs.

Table 3 educational qualification of respondents


Cumulative

Percent

Valid %&''C()''C( " 12.5 12.5 12.5

*+,)-+,)'C 10 31.2 31.2 "3.$

P/,)'C)P-, 10 31.2 31.2 5.0

*T-(' $ 25.0 25.0 100.0

Total 32 100.0 100.0


Table 3 above shows the educational background of the respondents used for

this study.

Out of the total number of 32 respondents, 4 respondents which represent 12.5

percent of the population are FSLC holders. 10 respondents which represent

31.2percent of the population are SSCE/WASSCE holders.10 respondents

which represent 31.2percent of the population are OND/HND/BSC holders


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while the remaining 8 respondents which represent 21.0 percent of the

population are MSC/PGD/PHD holders

Table 4 Marital status of respondents


Cumulative

Percent

Valid inle 10 31.2 31.2 31.2

married 20 62.5 62.5 !3.$

divorced 1 3.1 3.1 !6.!

widowed 1 3.1 3.1 100.0

Total 32 100.0 100.0Source: field survey, February, 2016.

Table 4 above shows the marital status of the respondents used for this study.

‘Out of the total number of 32 respondents, 10 respondents which represent

31.2 percent of the population are single.20 respondents which represent 62.5

percent of the population are married.1 respondent which represent 3.1

percent of the population is divorced while the remaining 1 respondent which

represent 3.1 percent of the population iswidowed.

Table 5 position of respondents


Cumulative

Percent

Valid 4unior taff 20 62.5 62.5 62.5

enior taff 12 3.5 3.5 100.0

Total 32 100.0 100.0



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Table 5 above shows the level or position of respondents used for this study.

Out of the 32 respondents, 20 which represent 62.5 percent of the population

are junior staff while the remaining 12 employees which represent 37.5 percent

of the population are senior staff.

Table 6 years of service of respondents


Cumulative

Percent

Valid 0#2 year $ 25.0 25.0 25.0

3#5 year 11 3"." 3"." 5!."

6#11 year 10 31.2 31.2 !0.6

above 12 year 3 !." !." 100.0

Total 32 100.0 100.0


Table 5 above shows the years of experience of the respondents used for this

study.

Out of the 32 respondents, 8 which represent 25.0percent of the population

have had 0-2yrs experience at work.11 which represent 34.4 percent of the

population have had 3-5yrs experience.10 which represent 31.2percent of the

population have had 6-11yrs experience while the remaining 3 employees

which represent 9.4 percent of the population have had more than 12yrs

experience.


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TABLES BASED ON RESEARCH QUESTIONS

Table 7 fiscal policy is good for the econoy of nigeria


Cumulative

Percent

Valid tronly aree 10 31.2 31.2 31.2

aree 15 "6.! "6.! $.1

undecided 5 15.6 15.6 !3.$

diaree 2 6.2 6.2 100.0

Total 32 100.0 100.0


Table 7 above shows the responses of respondents that fiscal policy is good for

the economy of Nigeria

10 respondents which represent 31.2 percent of the population strongly agreed

that fiscal policy is good for the economy of Nigeria.15 respondents which

represent 38.8percent of the population agreed that fiscal policy is good for the

economy of Nigeria.5 respondents which represent 15.6 percent of the

population were undecided while the remaining 2 respondents which represent

6.2 percent of the population disagreed that fiscal policy is good for the

economy of Nigeria.


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Table ! "pplication of adequate fiscal policies #ould inii$e extravagancy by

%overnent&


Cumulative

Percent

Valid tronly aree 10 31.2 31.2 31.2

aree $ 25.0 25.0 56.2

undecided 1 3.1 3.1 5!."

diaree 10 31.2 31.2 !0.6

tronly diaree 3 !." !." 100.0

Total 32 100.0 100.0


Table 8 above shows the responses of respondents that application of fiscal

policy would help minimize extravagancy by the government.


that application of fiscal policy would help minimize extravagancy by the

government.8 respondents which represent 25.0percent of the population

agreed that application of fiscal policy would help minimize extravagancy by the

government.1 respondent which represent 3.1 percent of the population is

undecided.10 respondents which represent 31.2 percent of the population

disagreed that application of fiscal policy would help minimize extravagancy by

the government while the remaining 3 respondents which represent 9.4 percent

of the population strongly disagreed that application of fiscal policy would help

minimize extravagancy by the government.


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Table ' fiscal policy #ill help inii$e corruption( enthrone transparency and

accountability in )igeria


Cumulative

Percent

Valid tronly aree 1$ 56.2 56.2 56.2

aree 10 31.2 31.2 $.5

undecided 2 6.2 6.2 !3.$

tronly diaree 2 6.2 6.2 100.0

Total 32 100.0 100.0


Table 9 above shows the responses of respondents fiscal policy will help

minimize corruption, enthrone transparency and accountability in Nigeria.


that fiscal policy will help minimize corruption, enthrone transparency and

accountability in Nigeria.

10 respondents which represent 31.2percent of the population agreed that

fiscal policy will help minimize corruption, enthrone transparency and

accountability in Nigeria.2 respondents which represent 6.2 percent of the

population were undecided while the remaining 2 respondents which represent

6.2 percent of the population strongly disagreed that fiscal policy will help

minimize corruption, enthrone transparency and accountability in Nigeria.


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Table 1* ipleentation offiscal policy influences the stabili$ation of the econoy


Cumulative

Percent

Valid tronly aree 15 "6.! "6.! "6.!

aree 10 31.2 31.2 $.1

undecided 3 !." !." $.5

diaree 2 6.2 6.2 !3.$

tronly diaree 2 6.2 6.2 100.0

Total 32 100.0 100.0


Table 10 above shows the responses of respondents that implementation of

fiscal policy influences the stabilization of the economy.


that implementation of fiscal policy influences the stabilization of the

economy.10 respondents which represent 31.2percent of the population agreed

that implementation of fiscal policy influences the stabilization of the

economy.3 respondents which represent 9.4 percent of the population were

undecided.2 respondents which represent 6.2 percent of the population

disagreed that implementation of fiscal policy influences the stabilization of the

economy while the remaining 2 respondents which represent 6.2 percent of the

population strongly disagreed that implementation of fiscal policy influences

the stabilization of the economy.


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RESEARCH HYPOTHESIS

Ho: Implementation of fiscal policy does not stabilize the economy.

Hi: Implementation of fiscal policy stabilizes of the economy

Level of significance: 0.05

Decision rule: reject the null hypothesis if the p-value or “r”

calculated is less than the level of significance or “r” tabulated.


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Correlations

Implementation of

fiscal policy

stabilizes the

economy

Application of

fiscal policy

prevents

extravagancy by

government

Implementation of fiscal policy

stabilizes the economy

Pearson Correlation 1 .867**

Sig. (2-tailed) .000

N 32 32

Application of fiscal policy

prevents extravagancy by

government

Pearson Correlation .867**

1

Sig. (2-tailed) .000

N 32 32

**. Correlation is significant at the 0.05 level (2-tailed).

Conclusion based on the decision rule:

Since the p-value or “r” calculated (0.000) is less than the level of

significance or “r” tabulated (0.05), we reject the null hypothesis

and accept the alternative thereby concluding that the effective

Implementation of fiscal policy stabilizes of the economy

NOTE:there is a strong positive relationship of 0.867 between those

respondents that believe that Implementation of fiscal policy

stabilizes of the economyand those who feel that the application of

fiscal policy prevents extravagancy by government.


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CHAPTER FIVE

FINDINGS, CONCLUSION AND RECOMMENDATION

The objectives of the study were to


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1.To examine the impact of fiscal policies in stabilization of the

Nigeria economy.

2.To examine the factors influencing the proper implementation

of various fiscal policies in Nigeria.

3.To identify the consequences of the implemented fiscal policies

by the government of Nigeria.

Findings from the study revealed the following

1.Fiscal policy is good for the economy of Nigeria

2.Application of adequate fiscal policies would minimize

extravagancy by government

3.Fiscal policy will help minimize corruption enthrone

transparency and accountability in Nigeria.

4.Implementation of fiscal policy influences the stabilization of

Nigerian economy

QUESTIONNAIRE ADMINISTRATION

INSTRUCTION: Please endeavor to complete the questionnaire by ticking the

correct answer (s) from the options or supply the information required where

necessary.


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SECTION A: Personal Information/Data

1.Gender

a.Male

b.Female2.Age grade

a.Below 20yrs

b.21-30yrs

c.31-40yrs

d.41-50yrs

e.51-60yrs

f. Above 60yrs

3.Educational qualification

a.WASCE/SSCE

b.OND/HND/BSC

c.MSC/PGD/PHD

d.Others

4.Marital status

a.Single

b.Married

c.Divorced

d.Widowed

5.Experience/years of service

a.0-2yrs

b.3-5yrsc.6-11yrs

d.Above 12yrs

6.Level/position

a.Junior staff

b.Senior staff

SECTION B:

Questions on the impact of fiscal policies in the stabilization of the Nigerian

economy

7.Fiscal policy is good for the economy of Nigeria.

a.Strongly agreed


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b.Agreed

c.Undecided

d.Disagreed

e.Strongly disagreed

8.Adequate application fiscal policies would help minimize extravagancy by

government.

a.Strongly agreed

b.Agreed

c.Undecided

d.Disagreed


9.Fiscal policy will help minimize corruption, enthrone transparency and

accountability in the government.a.Strongly agreed

b.Agreed

c.Undecided

d.Disagreed


10.Implementation of fiscal policy influences the stabilization of Nigerian economy.

a.Strongly agreed

b.Agreed

c.Undecided

d.Disagreed

e.Strongly disagreed11.Briefly outline other benefits of fiscal policy in Nigeria.

_ _ ___ __ _ _ _ __ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

_ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ __ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ _ _ __ _ _ _ _ __ _ _ _


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commitment. *o'rnal of Economic +heory "2("), $#"0%. B'iter, . . (2002). +he

scal theory of the price level/ A criti&'e. Economic *o'rnal ""2("), %$#0.

1anoneri, M. B., 3. E. 1'my, an B. +. 4ia (200"). 5s the price level etermine

y the nees of scal solvency6 American Economic 3eview $"(%), "22"#"27.

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price level. Econometrica !$("), !$#""!. 1ochrane, *. . (200%). Money as stoc9.

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"#". ims, 1. A. ("$$). A simple moel for st'y of the etermination of the price

level an the interaction of monetary an scal policy. Economic +heory (7), 7"#

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%7-!7. C7D ;.inance, "(") (20"0), 7%-%$. CD

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