– Fiscal Policy Effects on Consumption in Nigeria (1981-2014) –
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ABSTRACT
This study examine the effect of fiscal policy on consumption in Nigeria (1981 – 2014) ordinary least square (OLS) and ADF were employed for this research work showing that all the variables are stationary at first difference making cointigration test possible to find out the long run relationship between the variable, more so Error correction model (ECM) also test the short & long run relationship.
The major findings of this research work is that there exist a negative relationship between liquidity ration and money supply and inflection rate in Nigeria will monetary policy rate has a positive relationship with inflection rate in Nigeria.
It is equally observed that all variables of interest have insignificant relationship with inflection rate in Nigeria. Recommendation was suggested to the government based on findings of the research work.
INTRODUCTION
1.1 Background to the study.
The Nigeria economy has been plagued with several challenges over the year. The growth and development of the Nigeria 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 factor identified are wars, revolutions, populations growth rates and migration, technological transfer and changes as well as the openness of the country’s Nigeria 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 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 specific macroeconomic policy objectives and to counteract undesirable trends in the Nigerian economy (Gbosi,1998).
Fiscal policy is the means by which a government adjusts its level of spending to monitor and influence a nation’s economy. It involves the use of government spending, taxation, and borrowing that influences the patterns of economic activities and also the level and growth of aggregate demand output and employment.
Olawumi and Tajudeen (2007). Fiscal policy 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 includes price stability, consumption and employment levels, high and sustainable economic growth and reduction in a nation’s debt.
However, years of negligence and adverse policies have led to the under-utilization of these resources (Economic watct,2010) and this has contributed to the increasing unemployment rate in Nigeria.
The government may offset undesirable variations in private consumption and investment by anti-cyclical variation of public expenditure and tax revenue. Fiscal policy was not generally recognized as important until the birth of
Keynesian Economics in the mid-nineteen thirties which enhanced its significance as a policy tool to overcome the economic depression of Western Europe and North America.
The reliance on fiscal policy in developing economics for the achievement of the economic development objectives in particular and other objectives in general has been particularly great in relation to the use of other policies such as monetary policy (0laloku 1987).
Generally, increase in expenditure should lead to reduced unemployment rate but in Nigeria, the reverse is the case. As total expenditure increases, rate of unemployment increases.
This is because a greater percentage of the total expenditure is channeled to recurrent expenditure, and the proportion is worsening. In 2000, the percentage of the total expenditure spent on recurrent was 66% and has increased to 79% in 2010.
REFERENCES
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Amin (1998). As cited in Ogbole, F. O., Amadi, S. N. and Essi, I. D. (2011). Fiscal policy and economic growth in Nigeria: a granger causality analysis. American Journal of social and Management Sciences. ISSN Print: 2156-1540, ISSN Online: 2151-1559, doi:10.5251/ajsms.2011.2.4.356.359, Science Huβ, http://www.scihub.org/AJSMS
Amin (1998). As cited in Ogbole, F. O., Amadi, S. N. and Essi, I. D. (2011). Fiscal policy and economic growth in Nigeria: a granger causality analysis. American Journal of social and Management Sciences. ISSN Print: 2156-1540, ISSN Online: 2151-1559, doi:10.5251/ajsms.2011.2.4.356.359, Science Huβ, http://www.scihub.org/AJSMS
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Anyanwu, J. C. (1997): Nigerian Public Finance. Onisha: Joanee Educational Publishers Ltd.
Aregbeyen (2007). As cited in Ogbole, F. O., Amadi, S. N. and Essi, I. D. (2011). Fiscal policy and economic growth in Nigeria: a granger causality analysis. American Journal of social and Management Sciences. ISSN Print: 2156-1540, ISSN Online: 2151-1559, doi:10.5251/ajsms.2011.2.4.356.359, Science Huβ, http://www.scihub.org/AJSMS
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