AN EMPIRICAL STUDY OF THE IMPACT OF FISCAL POLICY ON PUBLIC CONSUMPTION AND EXPENDITURE IN NIGERIA

(Accounting)

AN EMPIRICAL STUDY OF THE IMPACT OF FISCAL POLICY ON PUBLIC CONSUMPTION AND EXPENDITURE IN NIGERIA

1975 – 2005

ABSTRACT

The   research   seeks  to   test   impact  of  fiscal   policy  on  public   consumption  and  expenditure  in Nigeria 1975-2005. Government   consumption   and expenditure  variables used,   already   divided   the   interest   of   total debt   and   total revenue.  We   find   that Government   Capital   Expenditure   is negatively   related   but   positively related  to  Government Consumption   Expenditure.  Size  was   used  as   a  control variable   and   the   results   proved  that  Government  Capital Expenditure  is  a  weak determinant  of  Government  consumption  Expenditure.

 The  goodness   of  fit  of  the  model   indicated  that  the  model has   a  good  predictive   ability   having   used  the  Durbin-Watson analysis.  There  is  no direct  relationship  between Government   consumption  Expenditure  and Government Recurrent   Expenditure, since  an  increase   in   Government Recurrent  Expenditure  ought  to increase   Government Consumption  Expenditure.

 

TABLE OF CONTENTS

Title                                                       

Table of Content                                                    

Abstract                                                               

CHAPTER ONE

1.1      Introduction                                                   

1.2 Statement of the Research Problem                   

1.3 Objectives of the Study                                   

1.4 Scope of the Study                                         

1.5 Significance of the Study                                 

1.6 Statement of Research Problem                        

1.7 Study Limitations                                           

CHAPTER TWO

Literature Review                                                   

2.0 Conceptual issues                                             

2.1 Fiscal Policy and Public consumption and Expenditure    

2.2 Limitations of Fiscal Policy in controlling public Expenditure                                          

CHAPTER THREE

3.1 Introduction                                                   

3.2 Theoretical Framework                                    

3.3 Model Specification                                  

3.4 Method of Data Collection                                

3.5 Method of Data Analysis                           

3.6 Problems of Data Collection                              

CHAPTER FOUR

4.0 Introduction                                                   

4.1 Presentation of Results                             

4.2 Interpretation of Results                           

CHAPTER FIVE

5.0 Summary of Findings                                      

5.1 Recommendations                                          

5.3 Conclusion                                                     

Bibliography

CHAPTER ONE

1.1  INTRODUCTION

The   structure  of  the Nigerian  economy  has been    involving  since  the nation   was   put  together  by British  in  the   early  part of  this century.  Prior   to  the  second   world   war,   the   Nigerian  economy  was   solely   based on   Agriculture   with little emphasis  on  export.

After independence from the British, the economy   took   a spiral leap towards development. Many   structures  were  put   in  place  by  the  government of   the  day  to turn   the  economy  around . One of   these was   the Structural Adjustment Programme of 1986.

 

       Prior to  independence, the  Nigerian  economy    was   characterized  by under – development, dualistic tendencies   and   un-organization.  (Itoha, Itsede, 2003).

       There  has been  concerned  effort  by  various government   in   Nigeria   to develop  and  regulate  the economy.  And   one of   the   tools used  by  the government is its   fiscal   and  monetary   policies.

       Monetary policy  is  a tool employed  by government   to   achieve internal  and external balance.  It is a  macroeconomic  tool.

       Fiscal policy involves  the  use of  government budget   to   influence   the   level  of   economic  activities ( Itoha,   Oyefusi, Otiakhi, 2003).

 

       For the  purpose of   this   project, our emphasis will  be   on   fiscal  policy  and   it’s  effect  on  public consumption   expenditure.

       Fiscal  policy refers   to   the   use   by   government of   it’s   expenditures   and   taxes   to  influence   the  level of   aggregate   demand   in   the economy.  Government expenditure   in   the   economy   constitute   an   injection into  the   economy  while   taxes  serves   as   leakages  out   of   the  flow  of   economic   activities  and   Income. w.w.w.wikepedia.com/ finance.

       Government expenditure in   the economy has varied   over   the  years.  In  the  years  1975 – 1992, Government   expenditure   share  in  the  country’s Gross domestic   product (GDP)   has   been 1975 60.5%)  1978 (18.4%)  1992  (31.8%) selectively. In  1997, it  was  17.6%. This   low  percentage  in  1997 may  be  due  to Military   interference   in   the   government.

The   higher the   percentage, the  higher  the  level of   public  expenditure  on consumption.

       The  fiscal policy  of  any country  has  a  big  role  to play  in  public  expenditure  on  consumption

1.2      STATEMENT   OF   THE   RESEARCH  PROBLEM;

The   role  of  every   society  (developed or   under-developed)   is   to  maximize   the   available   resources   to   determine   societal   preferences. One  of   the   instrument   used  by government   to  achieve  this   purpose   is   the   use   of   fiscal  policy  to   raise   revenue   and  determine the  kind  of  expenditure (both  on  consumption  and capital)  to  embark  upon.

       Consumption   expenditure   over   the   year   has form   part   of   the   major   outlay  from   government   purse.  Such  consumption  are   monies   spent  on day to day   maintenance  of   government (current Expenditure) – The   problems  that   will   be   answered   in   the  course   of   this study are:

i)            What   role  has   fiscal   policy   played  over  the years   in   raising fund  and  finance Expenditure    by government.

 

ii)          Despite  the high  consumption   Expenditure by   government , the   Nigeria

Economy is  still hampered  with   the  problem of   inadequate funding  of  the various government  Ministries and  Parastatals.

 

1.3      OBJECTIVES OF THE STUDY;  The   objectives  of the   study   is   to  examine   the   impact   of   fiscal policy   on   the   public consumption  expenditure   in   Nigeria  1975 – 2005.

 

The objectives of the study are;

 

1)         To  ascertain  whether   increase   in consumption   expenditure  in   Nigeria   between   1975   to   2005  has   increase to level  of   economic development

2)         What   fiscal  policies   have   been   used   by  the   government from   the  period   1975 – 2005   and   it’s   impact   on   consumption expenditure  by   the   government.

3)          implementing   tax   collection   from   the public.

1.4      SCOPE OF THE STUDY:  This   research  work will cover   a   several   review   of   the   fiscal   policy   that   has   been   put   in   place   from   the   period   of  1975 – 2005.

                        

Other areas to be evaluated   are:

 

i)            Consumer   spending   patterns   in   the  economy.

ii)          The   role  of   budgets   and   taxes   as   fiscal policies   and   their  impact   in   the   economy.

iii)        The   role  of   the central  Bank   in   managing and   controlling  in  implementing   the   fiscal policies.

1.5      SIGNIFICANCE OF THE STUDY: For the past years,   the researcher   has  scarcely, come  across   any  literature   by   local   authors  on   the   subject matter.  This   can   be   attributed  to the slow  pace of development of  the  subject   here  in

1.6      Nigeria  when  compared   with   other countries.  This   study  is  therefore  a  contribution 

1.7       To  knowledge and scholars.

Particularly  this  study would  be   beneficial   to the  fellowship group of   persons  and  significant   to   the   benefit   derivable  therefore.

 

i)            Students  will   benefit  from   this   scholarly article   because  there  is   scarcely   any   local  literature  on  the  rudiments  of  fiscal   policy  and  overall   consumption  and   expenditure  of the  public.

 

ii)          Corporate  organization   will   benefit   from   this   study  as  it will have  a  better  understanding   of   the   fiscal  policy  in  place and   how  it affects   it’s business.

 

 

iii)        This  study  will  be   significant  to  the government   as   the  government of   the present   day   will   be   able   to   learn   of   the   trends   in   fiscal  policy   development  in  the period under review and to know the best options that suits the economy . Also, the government will be able to know the spending patterns of the public.

 

iv)        The   tool  authorities  will   benefit   from   this study   as  it  will  be able  to  determine   the tool   to   be   paid  and   it’s effect  on  the paying  public taking   inflation  into  cognizance.

 

v)          This study   if    followed   will  lead  to economic   development in  the   sense  that high fiscal   deficits   jack   up   interest   rates   or reduces   credit   to   the  private   and   public  sectors  of   the   economy.  It  will   also   lead    to   the   implementation   of   a   well   tailored fiscal   policy   that  will  reflect  the   level   of   public   expenditure   in  the economy.

 

1.8      STATEMENT OF RESEARCH PROBLEM:  In explaining   the   impact of   fiscal   policy on government consumption Expenditure, the  following   hypothesis have  been   formulated.

1)          Increase in   public consumption Expenditure   by   government  bring  about  an   increase in GDP.

2)          Increase  in   tool revenue   by government   increase the level  of government  spending   on   consumption.

3)          As  inflation  rate   increase,   the  level  of spending   on  consumption  increases.

4)          Total debt  is  a   major determinant   of government expenditure   in   Nigeria

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