Fiscal Policy and Economic Growth in Nigerian Economy

International Journal of Research and Innovation in Social Science (IJRISS) | Volume IV, Issue IV, April 2020 | ISSN 2454–6186

Fiscal Policy and Economic Growth in Nigerian Economy

Cookey, Boma Clement and Okorie, Stanley
Department of Economics Faculty of Social Sciences, University of Port Harcourt, Nigeria

Abstract: – The study examined the relationship between Fiscal policy instrument and economic growth in Nigerian economy from 1980 to 2017. The study was based on the Keynesian theory in which fiscal policy has significant effect on output and employment. The study used secondary data collected from various resources and the Engle-Granger Error Correction model analysis techniques. The empirical model consists of a multiple regression model which has real gross domestic product growth as the dependent variable and government capital expenditure, recurrent expenditure, budget deficit and none-oil tax revenue as the independent variables. The test of unit root results revealed that all the variables had unit root at levels. However, they became stationary after 1st differencing. The result from the Johansen co-integration test shows that there is a long run relationship between fiscal policy instruments and economic growth. Analysis of the error correction model revealed that government expenditure, both capital and recurrent, have positive and significant impact on economic growth; while budget deficit and non-oil tax have negative and significant impact on economic growth.Changes in the size and levels of fiscal policy instruments accounted for 85% variation in the level of economic growth during the period under review. It was therefore recommended that government reduce deficit financing and non-oil tax.

Keywords: aggregate demand, economic growth, fiscal policy, non-oil tax, stabilization

I. INTRODUCTION

It is now well known that the economy, left to free operations of market mechanism will not perform efficiently and produce the results that will be fair to every member of the society for optimum performance, there is the need to guide the economy and complement the operations of the market mechanism for better outcomes. One strategy of intervention in the market economy is through macro-economic policy. Macro-economic policy is broadly categorized into two. The two categories are monetary and fiscal policies. Both policies.almost, have the same broad objectives of price stability, balance of payment viability, exchange rate stability, employment generation and economic growth. While monetary policy is primarily concerned with price and exchange rate stability, fiscal policy, on the other hand, is concerned with employment generation and economic growth. (Arby and Hanit, 2010).

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