Response of Fiscal Policy to Oil Price Shocks in Nigeria Economy

Response of Fiscal Policy to Oil Price Shocks in Nigeria Economy.

INTRODUCTION

Fiscal policy generally implies basic duty of any government to manipulate the receipt and expenditure sides of its budget in order to achieve certain national objectives such as increase in per-capita income, low unemployment rate, positive balance of payments (BOP) position and price stability.

The essence of fiscal policy anywhere in the world, is basically to stimulate economic and social development by pursuing a policy stance that ensures a sense of balance between taxation, expenditure and borrowing that is consistent with sustainable economic growth.

However, in oil-exporting countries, government expenditures often depend on oil revenue, which in turn depends on movement of oil price in the international market.

Hence government revenues tend to be highly volatile and this is due to the unpredictable nature of oil price thus making fiscal policy more challenging in such economies.

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Research Questions

Against the foregoing, the following questions become pertinent:

1. Is the response of fiscal policy to oil price shocks asymmetry in the case of Nigerian economy?
2. Is the asymmetries response of fiscal policy to oil price shocks a short or long run phenomenon?
3. Which dimensions of fiscal policy measure is more vulnerable to oil price shocks?
4. To what extent is tax and royalties from petroleum profits vulnerable to oil price shocks?

Objectives of the Study

The broad objective of this study is to find out how fiscal policies in Nigeria respond to notable oil price shocks – positive – negative that has occurred in the last 35 years. To achieve this broad objective, the study specifically hopes to:

1. Examine if the response of fiscal policy to oil price shock is asymmetry in the case of Nigerian economy.
2. Determine if the asymmetries response of fiscal policy to oil price shock is short or long run phenomenon.
3. Determine which dimension of fiscal policy measures is more vulnerable to oil price shocks.
4. Determine the extent to which tax and royalties from petroleum profits is vulnerable to oil price shocks.

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REFERENCES

Akanbi, O. A. (2013). Macroeconomic Effects of Fiscal Policy Changes: A case of South Africa. Economic Modelling, 35,pp. 771-785.

Akanni, K. A., & Osinowo, O. H. (2013).Effect of Fiscal Instability on Economic Growth in Nigeria. Advances in Economics and Business, 1(2),pp. 124-133.

Alesina, A., & Perotti, R. (1997).Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects. International Monetary Fund Staff Papers No. 44(2), pp. 210-248.

Alley, I. (2016).Oil Price Volatility and Fiscal Policies in Oil-Exporting Countries. OPEC Energy Review, pp.192-211.

Amin, A.A. (1998). Cameroon’s Fiscal Policy and Economic Growth.Presented at the November, 1998, African Economic Research Consortium, Nairobi.

Anyanwu, J. C. (1993). Monetary Economics: Theory, Policy and Institutions. Onitsha: Hybrid Publishers Ltd.