The Impact Of Fiscal Policies As A Tool For Stabilizing A Developing Economy (Nigerian Experience 2006-2011)

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Project and Seminar material for Accountancy


Abstract


This research work was undertaken in order to evaluate the impact of Fiscal policies as a tool for stabilizing a Nigerian economy. A major issue in Nigerian economy recovery relates to the prospect of adoption of the most relevant fiscal policies in its economy. In view of this, the researcher addressed the following problems to be curbed in this research study.

  1. Lack of required component of fiscal policies
  2. Inconsistency in the use of fiscal policies.
  3. Improper implementation of fiscal policies
  4. Inability of the country to improve on existing fiscal policies.

Due to the nature of this research work, ordinary method of data analysis and interval method were used. Both primary and secondary data were used. Secondary data were gotten from Newspapers and magazines, textbooks, journals and periodicals etc. questionnaires were used in generating primary data.

From the analysis made, the researcher discovered that between 1998 and 2000 fiscal years, the country has witnessed many changes in its fiscal policies which are hinged on the combination techniques applied on the components of fiscal policies, the mode of implementation of fiscal policies and the degree of success in the implementation of process.

Based on the findings made in this research study, the researcher recommends that the country should embark on the following in order to develop its economy.

  1. The depreciation of naira must be urgently considered.
  2. There should be stream – lining of activities of certain government amend agencies
  3. The government should make further fiscal adjustments.

Table Of Content


Preliminary Page(s)

  • Title
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One

1.0 Introduction

  • 1.1 Background of the study
  • 1.2 Statement of the problem
  • 1.3 Objectives of the study
  • 1.4 Scope and limitation of the study
  • 1.5 Significance of the study
  • 1.6 Definition of terms.

Chapter Two

2.0 Literature Review

  • 2.1 History of fiscal policies in the Nigeria pre-independence
  • 2.2 Definition and meaning of fiscal policies
  • 2.3 Difference between fiscal and monetary policies
  • 2.4 Tax as a tool of fiscal policy
  • 2.5 Expenditure in fiscal policy
  • 2.6 Tax and expenditure in fiscal policy
  • 2.7 Limitation of fiscal policy implementation
  • 2.8 The role of the central bank in the formulation and implementation of fiscal policy.

Chapter Three

3.1 Research Methodology

  • 3.2 Research design for the study
  • 3.3 Sources of data
  • 3.4 Methods of data analysis
  • 3.5 Population and sample size
  • 3.6 Design and administration of questionnaires

Chapter Four

4.0 Presentation, Analysis and Interpretation Of Data

  • 4.1 Introduction
  • 4.2 Presentation of data for 2006 fiscal year
  • 4.3 Analysis of data for 2006 through 2008 fiscal year
  • 4.4 Analysis of the federal government revenue and expenditure of 2006-2011
  • 4.5 Analysis of the state of the economy (2006 – 2011)
  • 4.6 Interpretation of data.

Chapter Five

5.0 Summary And Discussion Of Findings, Conclusions And Recommendations.

  • 5.1 Introduction
  • 5.2 Discussion of findings
  • 5.3 Summary of findings
  • 5.4 Conclusion
  • 5.5 Recommendation
  • Questionnaire sample.
  • Bibliography

Chapter One


1.0 Introduction

1.1 Background Of The Study

The economy of any country, irrespective of its structure is regulated by certain policies developed by the government. Some of these include economic policies, social policies, monetary policies etc. however of all these policies economic policies are most fundamental.

The economic factors are cynical because they serve as a foundation for the success of the other policies of government. The constituent element of these economic policies need to be manipulated simultaneously to achieve the desired results. The techniques of manipulating the economic factors play an important role two. One of the essential arms of economic policies – the fiscal policy, serve as a means of planning, organizing, controlling and coordinating the tempo of activities in the economy. Fiscal policy in itself can be said to be made up of specific course of action involving the formulation of tax structure and expenditure patterns.

The direction of these expenditures and taxes are specific in nature for results or changes. Before the world war, fiscal policy as a key to economic restructuring and development has been in existence. Many economists had propounded theories as a means to economic prosperity from the destruction of the world war, but in the early 20the century, Lord John Keynes put forward on articulated and constructive solution to solving economic problem. Lord Keynes in his book explain that the revamping of an economy could be achieved through the redirection of government expenditures from war machines to soft loans to increase investment, generate employment and consequently increase aggregate demand as a means of getting hold on the hyperinflation that existed after the Second World War.

In Nigeria, the earliest known forms of fiscal policies were used. It was established as far back as 19th century by the British Administration. Then the political system became complex due to the existence of the indigenous government under Emirs, Obas, Obongs, Obis etc. along with the colonial masters. In effect, payment for the administration of the country were made to the British government.

The government policy used by the colonial masters on revenue for development was adopted from Dr. Earl Grey report (1852) in which he advocated economic development amongst civilized people. Through self determination under the British supervision. Because of the existence of local authorities which led to indirect rule policy, the policy suited Nigeria. The revenue generation method which was based on duties paid on imported goods was pursued because it avoided disruption of the indigenous social and economic system and its incidence did not directly affect the average Nigerian.

Besides, revenue from duties the British government support however, began to dwindle due to increase public criticism in Britain against spreading of Brutish influence in West Africa. 1870, the government supplement stopped and was reduced from #5,000.00 to #2,000.00 to #1,000.00 in 1862, 1863 and 1865 respectively. The expenditure was solely directed towards improving the comfort of the British officers and the maintenance of law and orders. These and then. The revenue and expenditure volume also increase considerably well into the 20th century. Considering this modern time, fiscal policy as a means of economic development are not developed in isolation.

They are formulated and implemented simultaneously with monetary policies, foreign policies by the government with the aim of having a synchronized approach in tackling economic problems. The generally accepted fiscal policy measure incorporates welfare economics as a means of reducing adverse effects that may arise thus reducing the standard of living of the citizens of the country.

From the foregoing, this research is aimed at identifying the role of fiscal policies in the development of Nigerian economy.


1.2 Statement Of The Problems.

Fiscal policies can be valuable tool for economic growth and development if accurately and timely implemented. Therefore by the end of this project the following questions will be answered.

  1. Do Nigeria fiscal policies posses the required components and impact needed to fiscal economic growth?
  2. Are the fiscal policies consistent or not?
  3. Are they properly implemented?
  4. Can any improvement be made

1.3 Objectives Of The Study

  1. To examine the fiscal policies formulation in Nigeria from 2006-2011
  2. To identify the role they play in the development of Nigerian economy
  3. To determine if these roles have been consistent with stated objectives of the government.
  4. To determine the extent of implementation of formulated fiscal policies.
  5. To make recommendation where appropriate.

1.4 Major Research Hypothesis.

In order to interpret the result of this research study, the following hypothesis are formulated

  1. Ho: Fiscal policies have not helped in the development of Nigerian economy
    H1: Fiscal policies have helped in the development of Nigerian economy.
  2. Ho: For some years now, fiscal policies have not been properly implemented.
    H1: For some years now, fiscal policies have been properly implemented.

1.5 Scope And Limitation Of The Study

The scope of this research work has been limited to fiscal policy formulations and implementation in Nigeria between 2006 and 2000. it also includes the relationship between fiscal policies and other government economic policies how it is used to fight inflation, unemployment, encourage, investment/production of goods and services and generally encourage private participation in economy building.

This study further highlights the relevance of fiscal policies in the Nigeria economy. Its emphasis, encompasses the component of fiscal policies. Its relationship with other disciplines, how it is used in the economy. It does not however include comparison with other countries since economic structure and system differ and therefore would amount to unfair comparison. Constraints faced during this research work include.

  1. Limitation of cost and time
  2. Restricted access to some classified documents
  3. Fiscal disability and scarcity of related items.

1.6 Significance Of The Study

As a result of unequal importance of a stable and unstable economy to both the public and private sectors, this research work will be of benefits to

  1. Government for better planning of all policies related to their responsibilities to the economy in particular and the country as a whole.
  2. The professional – who analyze the economic system and whom this study will give an insight into further research and application in their academic fields.
  3. Students – as part of their academic pursuit.
  4. The entrepreneurs and Business men who also need to understand the implications and effects of certain fiscal policies that can have on their fortunes directly or indirectly.

1.7 Definition Of Terms.

Statutory Allocation:

A fund established by the federal government for pooling of extra – budgetary revenue of unexpected income especially from oil exports. It also provided a sources of fund for emergency purpose

Tax:

Compulsory payments by individuals corporate organization and partnership into the pursue of government for running of its activities.

Tax Avoidance:

A legitimate way of not paying tax by engaging in non-taxable activities.

Tax Evation:

An illegal way of not paying tax, one is liable to pay to the government. It is a criminal offense.

Per Capital Income:

A method of assessing the standard of living in any country. It involves determining potential income per person in an economy.

Multinationals:

Large firms in Nigerian that are one of the numerous subsidiaries of the parent companies aboard.

Foreign Policy:

Articulated course of action that defines Nigeria’s relationship with other countries and its stand and attitude towards certain international issues.

Budget:

An economic tool used by government to estimate its expected revenue and project expenditure over a period of time usually a year.

Marginal Propensity Of Investment:

That degree of increase in investment due to increase in income.

Inflation Rate:

The rate or speed at which the general price level are increasing.

Marginal Propensity To Consume:

That degree of increase in consumption level as a result of increase income.

Debt Conversion Programme:

A system initiated by the federal government through the central bank in which the country’s external debts are sold through auction to interested parties.

National Rolling Plan:

A kind of fiscal policy adopted by government especially during 198 – 2000 year which aimed at achieving real economic growth and macroeconomic stability in order to fight the problems of unemployment and poverty in the society.


Chapter Five


5.0 Summary And Discussion Of Findings Conclusion And Recommendations.

5.1 Introduction

In chapter four, all the government fiscal policies (Taxation and expenditure) from 1998 – 2000 have been presented an analyzed. The state of economy for each of these years has equally been analyzed. A comparative analysis for the state of each of the above economy has equally been made, moreover, the two hypothesis state in chapter one were subjected to statistical test using x2. the result obtained from the test of this hypothesis will be discussed in this chapter.

Since 1998, there have been many changes in the state of Nigeria economy as well as much adjustment to achieve the desired objectives / goals. The impact of taxation and expenditure as fiscal policies tool in the development of the Nigeria economy have also been x – rayed. Therefore, this chapter deals with summary of the whole findings made as well as useful recommendations made by the researcher for the further development of Nigerian economy.


5.2 Discussion Of Findings

There was a positive rapid development in the economy of the country in 1998. There was a decline in the rate of inflation and the Nigerian economy was conducive for savings and investment in the sense that the exchange rate remained stable. There was an increase in the federation account revenue from #463,608,000.8 and #305,630,000.7. however, there was a decrease in non-oil revenue from #166,000,000 in 1997 to #139,297,000.6 million in 1998.

Taxation was used as a tool for economic development and alleviation of poverty. It was used to encourage investment and savings, redistribution of income and curbing of social ills. There was a fall in capacity utilization in manufacturing sector from 34% in 1997 to 28% in 1998. there were sense measures of economic stability in 1998. the exchange rate remained slightly stable thus encouraging effective planning.

The rate of savings and deposit were at increase progress was also made at economic reforms including the removal of restriction on competition and private sectors of the economy. In 1998, it witnessed may modifications in fiscal policies. For instance, under the new tax relief for workers, the scope of exemption has been widened from #10,000 to #30,000.

In 1999, the total federally collected revenue stook at #949,187.9 million whide that of 2000 stood at #1,906,159.7 million. This implies that there was an increase by 3.9% of the total federally collected revenue. A breakdown of federation account allocation shows that the federal government resaved #502,294.4 million, state government #248,561.7 million, local government #207,146.6 million and special funds #93,641.2 million. All these allocatives relate to the year 2000. and for 1999 year, the federal government received #218,874.5 million, stated government #108,214.8 million, local government #90,179.2 and special funds #29,206.2 million. The sum of #59,771.2 million was allocated to the oil producing state on the basis of #7,527.3 million.

There was a deficit in gross domestic product in the year 2000 i.e from #285,104.7 million in 1999 to #103,777.3 million in 2000. the federal government share of federation account rose by #283,419.9 million received in 1999. There was an increase in aggregate expenditure of the federal government by 19% to 653,135.3 million by 7.3%. there was also an increase in recurrent expenditure by 15%.


5.3 Summary Of Findings

The summary of findings made in this study would be based on the results of the major hypothesis that were tested and interpreted.

Based on this, the researcher stated that, fiscal polices have contributed tremendously to the growth and development of Nigerian economy. Taxation as one of the fiscal policies instrument is governments major source of revenue. Revenue from taxation has really been used by government in diverse ways for economic development. For sure years now, government has been especially in the areas of infrastructure development.

The researcher, in addition to the above discovers that there has been proper implementation of fiscal policy measures by the country.


5.4 Conclusion

The impact of fiscal policies as a tool in stabilizing the Nigerian economy cannot be over estimated. Fiscal policy measures have contributed in no small measure to the grow the development of the Nigerian economy. From the findings made the researcher discovered that fiscal policies are designed in line with the objective of the government and in line with solving of the economic problems.

The common side effect included a deteriorating unemployment rate, increase price in levels, increase external debts and low capacity utilization by industries.

There is no gain saying that no developing country can attain the stage of self-sustained growth and development unless it first achieves fiscal viability and restores domestic stability. Where a country imbibes the culture of fiscal restrains, the reward is bound to be positive in the long run.


5.5 Recommendations

For a country to utilize its fiscal policies judiciously, so as to develop its economy, such a country should embark on the following.

  1. There should be an argent consideration of the Naira as this induces inflation. The exchange rate of the Naira should be determined by the market forces instead of being pegged in the best interest of the general populaces.
  2. There should be streamlining of activities of certain government owned agencies to avoid economic waste.
  3. In order to eliminate the level of inconsistencies, which affect our industries the policy of seven years comprehensive tariff plan should be adhered to.
  4. The federal government should make further fiscal adjustments. In the absence of such adjustments, weak fiscal policy management system will continue to reduce potential economic growth and development. Improvement in the macro- economic and sectoral policy environment revenue diversification, expenditure rationalization, gradual elimination of deficit financing as well as further improvement in budgeting and planning process.

Fiscal policies can have positive or negative impact on the economy of a country depending on:

  • The combination techniques applied on the component.
  • The mode of implantation
  • The degree of success in the implementation process.

The impact of fiscal policies is also dependent to a greater deal on the consistency to the policy measures designed to suit the problems. Nigeria with adequate reference to the literature reviewed, data presented and analyzed and amongst other analytical basis does possess to an appreciable degree fiscal policies that possess the required components for economic development. The components include; tax, tax structures, expenditure patterns and legislation.

The problems tackled by fiscal polices each year remained largely unsolved. The implementation of fiscal policies for the years under review were considerably affected in varying degrees by common factors of the devaluation of the Naira, fluctuation in oil prices and increased fivel price which resulted in poor performance.


The Impact Of Fiscal Policies As A Tool For Stabilizing A Developing Economy (Nigerian Experience 2006-2011)


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