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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.
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 ofspending 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 themonetary 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 butin 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. The implication is that unemployment rate soars because less percentage of the total expenditure is spent on capital project which creates job in an economy.One of the major issues raised against Nigeria’s 2012 budget was the high rate of recurrent expenditure. Based on the budget, government proposed spending most of its money on running the administration rather than in the badly needed infrastructure projects to create jobs and boost growth in the Nigeria economy (Olajide & Adekoya, 2012).
This research aims at determining the extent to whichNigeria’s fiscal policy has affected the economy with emphasis on the impact of various components of public expenditure on the economy.
1.2 Statement of Problem
The poor growth performance of the Nigeria economy since 1986 has generated interest in the issue of growth and development. From 1970 to 1985 there was financial repression.However, financial liberalization was introduced in 1986 to realize necessary finance to promote growth. This has made it necessary to study and understand therelationship between finance and growth. Nigeria is endowed with enormous potential for growth and development with her vast oil and gas resources, rich and expensive agricultural land, solid minerals and abundant human resources. Despite these factors, since 1960 when she got her independent from Britain, the successive governments have not done enough to put the nation’s resources to effective productive use as to chart the path of consumption and development.
There exists a consensus in the literature that an adequate and effective macroeconomic policy is critical to any successful development process aimed atachieving high employment sustainable economic growth, price stability,consumption, long-viability of the balance of payments and external equilibrium.Despite the lofty place of the management of the economy, the Nigeria economy is yet to come on the path of sound growth and development studies by (Agrobenebo,2003).(Abosi,2002) and 0kona 1997) indicates that the economy is still faced with chronic unemployment rising rate of inflation, dependence on foreign technology and more.
The question then is what form of fiscal policy rules will perform better inreducing debt accumulation and promote the necessary medium term budget deficit stability. Can fiscal policy curb the effect on consumption and employment in Nigeria? Arising from the issue above, this paper seeks to examine the effect of fiscal policy on consumption and employment in Nigeria and thus fill the gap in knowledge.
1.3 Objectives of the Study
The main objective of the study is to ascertain the effect of fiscal policy on consumption level in Nigeria.
The specific objectives of this work includes
1.4 Research Question
To serve as a study guide, we provide the following lead questions for which the study seeks to provide the answers.
1.5 .Statement of Hypothesis
H01:Government expenditurehas no significant effect on consumption level in Nigeria.
H02: Non-oil revenue has no significant effect on consumption level in Nigeria.
1.6 Scope ofthe Study
The study will focus on the effect of fiscal policy on consumption in Nigeria over the period of (1981-2013).
The choice of the period is as a result of data availability and thus, helps to capture the various fiscal regimes under the different government regimes experienced in Nigeria. Also these have been informed by the variable to the study.
1.7Significant of the Study
The study will be of benefit to government and hence will help public fund managers financial planning forecast as well as mending the needed areas in public expenditure. Also, it will encourage government in finding lasting solution to the problem of income inequality and rising poverty across the country.
All stakeholders in the public sector will find the work valuable as it re-direct and re-orientate the thinking of managers of public fund to the benefit of all Nigerians. Individuals and groups will also benefit from this study as it will provide the avenue for better public participation in budget and budgetary implementation and tracking.
This research will be of great intellectual value to students of economics andother discipline who would want to make further research on fiscal policy effect on consumption and employment in Nigeria as an evaluation of effectiveness of fiscal policy in Nigeria.
Lastly, it will add to already existing body of knowledge on this topic as it will provide a new window for further research.