Fiscal Policy and Economic Growth in Nigeria from 1970 Till 2011

Topics: Macroeconomics, Public finance, Economics Pages: 18 (6500 words) Published: February 20, 2013

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Olabisi Onabanjo University, Ago-Iwoye Abstract
This paper has examined empirically the contribution of fiscal policy in the achievement of sustainable economic growth in Nigeria. Using the Solow growth model estimated with the use of Ordinary Least Square method, it was found that fiscal policy has not been effective in the area of promoting sustainable economic growth in Nigeria. Although, the finding seems invalidating the Keynesian postulation of the need for an active policy to stimulate economic activities, however, factors such as policy inconsistencies, high level of corruption, wasteful spending, poor policy implementation and lack of feedback mechanism for implemented policies evident in Nigeria which are indeed capable of hampering the effectiveness of fiscal policy have made it impossible to come up with such a conclusion. To put the Nigerian economy, therefore, along the path of sustainable growth and development, the government must put a stop to the incessant unproductive foreign borrowing, wasteful spending and uncontrolled money supply and embark upon specific policies aimed at achieving increased and sustainable productivity in all sectors of the economy. Keywords: Fiscal Policy, Economic Stabilization, Economic Growth Introduction

The achievement of macroeconomic goals namely full employment, stability of price level, high and sustainable economic growth, and external balance, from time immemorial, has been a policy priority of every economy whether developed or developing given the susceptibility of macroeconomic variables to fluctuations in the economy.. The realization of these goals undoubtedly is not automatic but requires policy guidance. This policy guidance represents the objective of economic policy. Fiscal and monetary policy instruments are the main instruments of achieving the macroeconomic targets. The basic fiscal policy instruments are public expenditure and tax while the monetary police instruments include the devices of reserve requirements, discount rates and open market policy. The main focus of this paper, therefore, is to examine the effects of fiscal policy on economic growth in Nigeria. The specific objectives, however, include; 1. To offer theoretical and empirical insights into the link between fiscal policy and economic growth. 2. To analyze the structure and trends in fiscal policy in Nigeria. 3. To offer policy recommendations based on the empirical findings of the study.There exists a consensus in the literature that an adequate and effective macroeconomic policy is critical to any successful development process aimed at achieving high employment, sustainable economic growth, price stability, long – viability of the balance of payments and external equilibrium. This, therefore, suggests that the significance of stabilization policy (fiscal and monetary policies) cannot be overemphasized in any growth oriented economy. Growth and poverty alleviation have received attention in Nigeria (see, for example, Aigbokhan, 1985, 1998; Obadan, 1997; Ogwumike and Ekpenyong,1995; among several of such studies). However, none of these studies have attempted to examine the work analytically. Furthermore, previous works on Nigeria have relied on partial frameworks. The differential effects of fiscal policy on various productive sectors and on the different income groups are neither explored nor captured. Most of these studies have preoccupied themselves with presenting poverty profiles in Nigeria. Some of them have attempted to examine the impact of growth on inequality. But it is quite clear from the literature that growth, inequality and poverty can influence, and in turn influenced by, fiscal...

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