THE IMPACT OF FISCAL POLICIES IN STABILIZATION OF THE

NIGERIAN ECONOMY

BY

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The growth and stabilization of the Nigerian economy has not been
stable over the years as a result, the countrys 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
factors identified are wars, revolutions, population growth rates and
migration, technological transfer and changes as well as the
openness of the countrys Nigerian economy are some of the factors
that could affect the implementation of fiscal policy.
The cyclical fluctuations in the countrys economic activities has led
to the periodical increase in the countrys 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 specified macroeconomic policy objective
and to counteract undesirable trends in the Nigerian economy
(Gbosi, 1998). Therefore, they cannot be left to the market forces of
demand and supply as well as other instruments of stabilization
such as monetary and exchange rate policies among others, are
used to counteract are problems identified (Ndiyo and Udah 2003).
This may include either an increase or a decrease in taxes as well
as government expenditures which constitute the bedrock of fiscal
policy but in reality, government policy requires a mixture of both
fiscal andmonetary policy instruments to stabilize an economy
because none of these single instruments can cure all the problems
in an economy (Ndiyo and Udah, 2003).

The Nigeria economy started experiencing recession form early

1980s that leads to a depression in the mid 1980s. This depression
continued until early 1990s without recovering from it. As such, the
government continually initiated fiscal policy measures that would
tackle, stabilize and overcome the dwindling economy. Drawing the
experience of the great depression, government policy measure to
curb the depression was in the form of increase government
spending (Nagayasu, 2003). According to Okunroumu, (1993), the
management

of

the

Nigerian

economy

in

order

to

achieve

macroeconomic stability has been unproductive and negative hence

one cannot say the Nigeria economy is performing. This is evidence
in the adverse inflationary trend, government fiscal policies,
undulating foreign exchange rates, the fall and rise of gross
domestic product, unfavourable balance of payments as well as
increasing unemployment rates are all symptoms of growing
macroeconomic instability. As such, the Nigeria economy is unable
to function well in an environment because there is lowcapacity

utilization attributed to shortage in foreign exchange as well as the

volatile andunpredictable government fiscal policies in Nigeria
(Isaksson, 2001).
1.2 STATEMENT OF THE PROBLEM
It is an established fact that market mechanism cannot solely
perform all the economic functions in a country; and as such public
policy like fiscal policy is required to stabilize, correct, guide and
supplement the market forces. Fiscal policyis one of such policies
that government uses to correct market imperfections and failure.
In Nigeria, governments at various times had used these policies to
stabilize and manage the economy with a view to achieving desired
macroeconomic

objectives

such

as

promoting

employment

generation, ensuring economic stability, maintaining price stability

and balance of payment viability, ensuring exchange rate stability
and maintaining stable economic growth. The fiscal policy thrust
used in manipulating the economy depends on the objectives that
need to be achieved at any time period. Government intervention in

the economy through fiscal policy has been to manipulate the

receipt and expenditure sides of its budget in order to achieve
certain national objectives. The reality however is that often, there
have been wastages, some spending has been politicized, and there
has

been

high

level

misappropriation,

mismanagement

and

corruption. However, the researcher is examining the impact of

fiscal policies in stabilization of the Nigeria economy.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
1. To examine the impact of fiscal policies in stabilization of the
Nigeria economy.
2. To examine the factors influencing the proper implementation
of various fiscal policies in Nigeria.
3. To identify the consequences of the implemented fiscal policies
by the government of Nigeria.
1.4 RESEARCH QUESTIONS

1. What is the impact of fiscal policies in stabilization of the

Nigeria economy?
2. What are the factors influencing the proper implementation of
various fiscal policies in Nigeria?
3. What are the consequences of the implemented fiscal policies
by the government of Nigeria?
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
1. The outcome of this study will be a useful guide for the
government of Nigeria, stakeholder in the financial sector and
the general public on how fiscal policies can be used as a tool
for the stabilization of the Nigerian economy.
2. This research will also serve as a resource base to other
scholars and researchers interested in carrying out further
research in this field subsequently, if applied will go to an
extent to provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY

This study on the impact of fiscal policies in stabilization of the

Nigeria economy will cover various fiscal policies that has been
adopted by the government of Nigeria considering its effect on the
stabilization of Nigerian economy.
LIMITATIONS OF STUDY
Financial constraint- Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials,
literature or information and in the process of data collection
(internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this
study with other academic work. This consequently will cut down
on the time devoted for the research work.

REFERENCES
Gbosi, A.N. Contemporary Macroeconomic Problems and Stabilization
Policies in Nigeria, (2001), Antovic Ventures, Port Harcourt.

Gbosi, A.N. Banks, Financial Crisis and the Nigerian Economy

Today, (1998), Corporate Impression Publishers, Owerri.
Isaksson, A. Financial liberalization, foreign aid and capital
mobility: Evidence from90 developing countries, Journal of
International Financial Markets, Institutions and Money, 11(2001),
309-338.
Nagayasu, J. The efficiency of the Japanese equity market, IMF
Working Paper, No. 142 June, (2003).
N.A. Ndiyo and E.B. Udah, Dynamics of monetary policy and
poverty in a small open economy: The Nigerian experience, Nigerian
Journal Economics and Development Matters, 2(4) (2003), 40-68.
Okunrounmu, T.O., Fiscal policies of the federal government
strategies since 1986, Central Bank of Nigeria, Economic and
Financial Review, 31(4) (1993), 340-350.

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1. Introduction
The growth and development of the Nigerian economy has not been
stable over the years as a result, the countrys 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
factors identified are wars, revolutions, population growth rates and
migration, technological transfer and changes as well as the
openness of the countrys Nigerian economy are some of the factors
responsible. The cyclical fluctuations in the countrys economic
activities has led to the periodical increase in the countrys
unemployment and inflation rates as well as the external sector
disequilibria (Gbosi, 2001). In other words, fiscal policy is a major
economic stabilisation 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 specified
macroeconomic policy objective and to counteract undesirable
trends in the Nigerian economy (Gbosi, 1998). Therefore, they
cannot be left to the market forces of demand and supply as well as
other instruments of stabilization such as monetary and exchange
rate policies among others, are used to counteract are problems
identified (Ndiyo and Udah 2003). This may include either an
increase or a decrease in taxes as well as government expenditures
which constitute the bedrock of fiscal policy but in reality,
government policy requires a mixture of both fiscal and monetary
policy instruments to stabilize an economy because none of these
single instruments can cure all the problems in an economy (Ndiyo
and Udah, 2003). The Nigeria economy started experiencing
recession form early 1980s that leads to a depression in the mid
1980s. This depression continued until early 1990s without
recovering from it. As such, the government continually initiated

policy measures that would tackle and overcome the dwindling

economy. Drawing the experience of the grate depression,
government policy measure to curb the depression was in the form
of increase government spending (Nagayasu, 2003). According to
Okunroumu, (1993), the management of the Nigerian economy in
order to achieve macroeconomic stability has been unproductive
and negative hence one cannot say the Nigeria economy is
performing. This is evidence in the adverse inflationary trend,
government fiscal policies, undulating foreign exchange rates, the
fall and rise of gross domestic product, unfavourable balance of
payments as well as increasing unemployment rates are all
symptoms of growing macroeconomic instability. As such, the
Nigeria economy is unable to function well in an environment were
there is low capacity utilization attributed to shortage in foreign
exchange as well as the volatile and unpredictable government
policies in Nigeria (Isaksson, 2001),

2.2. THEORETICAL FRAMEWORK

Fiscal theory of the price level(FTPL)
The price level is defined as the inverse of the value of money: how
much money it takes to buy a given basket of goods. By contrast,
the FTPL is about the inverse of the value of government debt. This
is explained particularly clearly in Cochrane (2005). As Buiter
(2002) points out, there is no reason in general for the value of debt
and the value of money to coincide. To the extent that households
anticipate a government default, they may trade government debt at
a discount, without necessarily affecting the value of money. This
criticism is particularly serious when the central bank adopts a
monetary policy that rules out monetization of government debt. As
an example, consider the case in which the central bank adopts a
constant money supply rule and does not engage in open market

operations. In this case, there is no link between government debt

and money, and no reason why a maturing T-Bill with a face value
of $1,000 should trade at par with ten $100 notes issued by the
central bank. Maturing debt and money will only trade at par if
fiscal policy is run in such a way that the government will have the
appropriate amounts of money to repay its debt, independently of
the price level: this requires real tax revenues to adjust to prices,
violating the central assumption of the FTPL. The same criticism
does not apply when the monetary policy of the central bank allows
unlimited monetization of debt, as in the case of an interest rate
peg. In this case, the central bank commits to exchange arbitrary
amounts of money and one-period government debt at a fixed price.
This commitment is not inconsistent with a second commitment, to
redeem all maturing government debt at par, offering money in
exchange. Since the central bank has unlimited ability to produce
money, a government default on nominal debt is now ruled out. In
this case, the FTPL is simply a version of a commodity money

standard; money, as well as other government liabilities, is backed

by the present value of future government surpluses, just as the
value of Microsoft shares is backed by the present value of Microsoft
profits (this is the main example in Cochrane 2005). While the
original treatment of the FTPL was ambiguous (in particular,
Woodford (1995) considers the case of the FTPL under a money
supply rule), it is now widely agreed that the FTPL requires an
implicit

or

explicit

institutional

commitment

to

prevent

government default (or excess repayments by the government)

through an appropriate (de)monetization of debt. In this form, the
FTPL bears some similarities with the unpleasant monetarist
arithmetic of Sargent and Wallace (1981). Under the monetarist
arithmetic, a fiscal deficit imbalance will trigger inflation, because
seigniorage revenues are necessary to prevent the government from
defaulting. Even though monetization of government debt plays a
central role in both theories, there are important differences.
According to the unpleasant monetarist arithmetic, seigniorage

revenues (which are part of the present value of surpluses in

equation Present value of primary fiscal surpluses as of time ) will
have to respond to changes in Pt to ensure that the government
budget

constraint

holds;

hence,

equilibrium

occurs

through

adjustments in the right-hand side of Present value of primary

fiscal surpluses as of time . In the FTPL, seigniorage revenues on
the monetary base play at best a minor role. Under the FTPL, it is
the price level that responds to shocks to spending and taxes; its
fluctuations cause the real value of debt (the left-hand side of
Present value of primary fiscal surpluses as of time) to appreciate or
depreciate to reach an equilibrium.
The FTPL is based on the assumption that equation Present value of
primary fiscal surpluses as of time holds only at an equilibrium.
The critics of the FTPL view instead Present value of primary fiscal
surpluses as of time as a constraint that forces the government to
match the real value of debt with an appropriate present value of
primary surpluses, for all conceivable levels of prices. To better

understand the issue, it is useful to note that Present value of

primary fiscal surpluses as of time looks identical to the inter
temporal budget constraint of any household in the economy: it is
sufficient to re label Bt as the nominal liabilities of the household,
and the right-hand side as the present value of its non-asset
income, net of consumption. In the case of a household, there is
universal agreement that Present value of primary fiscal surpluses
as of time should be viewed as a constraint: given any value of Pt,
the household must choose a consumption/income plan that
satisfies Present value of primary fiscal surpluses as of time . The
critics of the FTPL argue that the government should be no different
from any other agent. Unlike the previous criticism, the heated
debate that has emerged on this point has not resulted in
widespread agreement. As Bassetto (2005) pointed out, the
disagreement stems from a fundamental weakness in the tools that
have been used to study this problem. Both critics and supporters
of the FTPL adopt the dynamic competitive equilibrium framework.

This framework is designed for environments populated by many

small players; in the presence of a large and potentially strategic
player, such as the government, it offers little guidance in
distinguishing between equilibrium conditions, and constraints that
the large player(s) faces under any circumstances, even away from
an equilibrium. While there are many applications for which this
ambiguity is not important, a proper account of the distinction is
essential to study the uniqueness or multiplicity of equilibria, which
is the object of interest in the case of the FTPL. To overcome this
difficulty, Bassetto (2002) explicitly describes the economy as a
game, where the actions available to all households and the
government at any point in time are clearly spelled out. Bassetto
shows that the basic version of the FTPL, with an unconditional
commitment to a sequence of primary surpluses, is not a valid
government strategy in a well-specified game, at least if the
sequence includes a primary deficit at any point in time. Intuitively,
a primary deficit is only possible if the government is able to raise

revenues through borrowing. Since lending is voluntary (as opposed

to payment of taxes), any plausible game includes the possibility
that private agents will not lend; if this circumstance arises, the
government is forced to a fiscal adjustment. Bassetto then proves
that there exist other government strategies that lead to a unique
equilibrium price level that is determined from taxes and spending
alone. These strategies paint a very different picture of the
conditions under which a FTPL arises: whereas the traditional view
relies on the government setting taxes and spending exogenously,
with no regard for the evolution of debt, the strategies described by
Bassetto require the government to strongly react to incipient debt
crises by accumulating larger surpluses in present value. A small
empirical literature (e.g. Canzoneri, Cumby, and Diba 2001,
Cochrane 2001) has looked into the usefulness of Present value of
primary fiscal surpluses as of time in accounting for the evolution
of prices. The results are not very favorable; in particular, when a
government runs an unexpected deficit, the real market price of its

debt increases, suggesting that households expect that the

government will make up for the shortfall through increased
surpluses in the future. If future surpluses were exogenous and
fixed, Present value of primary fiscal surpluses as of time would
suggest that an unexpected deficit should have its primary effect
through inflation, by depressing the real market value of debt. While
these observations cannot refute the central claim of the FTPL, that
Present value of primary fiscal surpluses as of time

is only an

equilibrium condition, they call into question the usefulness of the

FTPL to explain actual inflationary episodes. Recent research into
monetary policy has looked for interest rate rules that ensure price
level

determinacy

independently

of

the

fiscal

policy

of

the

government; this has weakened interest in the FTPL. Though no

issue as controversial as the FTPL has emerged since, this recent
analysis is still open to ambiguous distinctions between policy rules
that should capture government behavior in all possible scenarios
and equilibrium relations across the endogenous variables of an

economic system. A more complete analysis awaits the development

of new tools that are as simple and powerful as dynamic competitive
equilibrium, and yet able to appropriately capture the special role of
the government.

2.3. CONCEPTUAL FRAMEWORK

The FTPL and the cashless economy
Expositions of the FTPL have occasionally been conducted in
models that use Woodfords (2003b, Ch. 2) cashless limit economy,
i.e., an economy in which advances in payments technology have
made private agents demand for real money balances negligible, so
that virtually none of the economys transactions are carried out

using money. We argue here that these two model featuresFTPL

and the cashless economytogether represent a combination that
is unlikely to generate useful or genuinely interesting conclusions.
FTPL results and cashless-economy setups have both been
advanced as departures from orthodox analysis, but the former are
actually less striking in the presence of the latter. The FTPL has
been invoked as nonstandard precisely because it produces a
different explanation for inflation from the quantity theory of
money. The quantity theory describes the inflation process in terms
of the adjustment by private agents to increases in the nominal
money stock that are excessive in relation to their demand for real
balances. The role that contractions in the agents demand for
money make to sustained inflations in this account is confined to
contractions that are an endogenous response to expansions of
supply. The FTPL, by contrast, provides a channel whereby ongoing
contractions in agents demand for money occur endogenously, even
in unchanged supply conditions. It is, therefore, hardly a good basis

for demonstrating the novelty of the FTPL to adopt a modeling

environmentthe cashless limitin which agents demand for real
money balances has already been eliminated exogenously. The
conflict between promoting the FTPL and using cashless-economy
assumptions can also be illustrated through an analogy with
Ricardian equivalence. As we noted in the introduction, imposing
conditions

which

usually

lead

to

satisfaction

of

Ricardian

equivalence is the appropriate starting point for promoting the

FTPL. For then the importance of fiscal policy (in particular, of
government

debt)

can

potentially

be

demonstrated

in

an

environment that typically minimizes the importance of fiscal policy

for macroeconomic developments. By the same token, the relative
unimportance

of

monetary

policy

in

the

FTPL

is

ideally

demonstrated in a standard model in which orthodox results on the

importance of monetary policy for price level determination would
usually prevail. To use a cashless-economy setup, by contrast, is to
start with a model that is nonstandard from the point of view of

monetary analysis, so violations of standard results are less

compelling. In particular, results that highlight the importance of
the stock of government debt for price level determination are not
dramatic in an environment in which the financial stock typically
relevant for price level dynamics moneyhas been removed from
the economy, or has been deprived of its traditional medium-ofexchange properties.
Fiscal policy in Nigeria
The past two decades in Nigeria have witnessed a considerable
increase in government indebtedness. Beyond the issue of poor
quality of public expenditures, the ability to save windfalls from
excess crude oil proceeds by the government remains critical in
ensuring

that

government

expenditure

is

maintained

at

sustainable level and consistent with the absorptive capacity of the

economy (Baunsgard, 2003). Evidence reveals that there was a
substantial increase in government spending, primary deficit and
debt in Nigeria between 1991 - 2005. The oil windfall between 1991

- 1992 was followed by rapid growth in government spending with

an average of about 21 percent of GDP during that period. However,
as the oil market weakened in subsequent years, oil receipts were
not adequate to meet increasing levels of demands and expenditures
as being reinforced by political pressures, were not rationalized.
Although the democratically elected government in 1999 adopted
policies to restore fiscal discipline, the rapid monetization of foreign
exchange earnings between 2000 - 2004, another era of oil windfall,
resulted in large increases in government spending. In 2005 alone,
the government spending alone increased to 19 percent of GDP
from 14 percent in 2000. Extra ordinary budgetary outlays, not
initially included in the budget increased. According to Baunsgard
(2003),

experience

in

Nigeria

illustrates

the

difficulties

of

implementing fiscal policy in an environment with highly volatile

revenue flows. Over the years, there have been a strong deficit bias
and procyclically in fiscal policy, driven largely by oil prices 19911992 and 2000-2002, revenue and expenditure have increased

sharply. This as typically seen followed the scaling back of

expenditures as oil prices substantially decline, though at times
with a lag. The implications of such boom-burst fiscal policies
include transmission of oil-price volatility to the stable provision of
government services. This has added to the failure over neither the
years of public spending, facilitating the diversification nor growth
of the economy.

Fiscal Policy and Economic Growth

Fiscal policy is generally believed to be associated with growth, or
more precisely, it is held that appropriate fiscal measures in
particular circumstances can be used to stimulate economic growth
and development (Khosravi and Karimi, 2010). There is an upsurge
of empirical literature aimed at unraveling the relationship between
various measures of fiscal variables and economic growth. In this
endeavour, cross section, panel and time series data have been

employed. Attempts to underpin the growth relationship are

undermined by conceptual statistical and estimation concerns
(Amanja and Morrisey, 2005; Mansouri, 2008; Bell, Brunori, Green,
Wolman, Cordes and Qadiri, 2005). Nijkamp and Poot (2002)
conducted a metaanalysis of past empirical studies of fiscal policy
and growth and found that in a sample of 41 studies, 29% indicate
a negative relationship between fiscal policy and growth, 17% a
positive one, and 54% an inconclusive relationship. One of the
contributory factors to these varied empirical results is the measure
used to proxy for fiscal policy. Table one shows various empirical
studies on the relationship between fiscal policy and economic
growth.

2.4. EMPIRICAL REVIEW

Recent research into monetary policy has looked for interest rate
rules that ensure price level determinacy independently of the fiscal

policy of the government; this has weakened interest in the FTPL.

Though no issue as controversial as the FTPL has emerged since,
this recent analysis is still open to ambiguous distinctions between
policy rules that should capture government behavior in all possible
scenarios

and

equilibrium

relations

across

the

endogenous

variables of an economic system. A more complete analysis awaits

the development of new tools that are as simple and powerful as
dynamic competitive equilibrium, and yet able to appropriately
capture the special role of the government.
Fiscal policy is undoubtedly one of the most important tolls used by
government to achieve macroeconomic stability of the economy of
most developing countries (Siyan and Adebayo, 2005). Therefore,
the attempt to empirically test the efficacy of monetary and fiscal
policy in an economy dates back to the pioneering studies of
Friedman and Meiselman (1963) who empirically investigated the
responsiveness

of

general

price

level

on

economic

activity

represented by aggregate consumption to change in money supply

and autonomous government expenditure using ordinary simple

linear regression model to estimate the US data from 1897-1957. In
their conclusion, they found out that a stable and predictable
casual relationship existed between demand and money supply
while no such significant relationship was observed for government
expenditure (Bogunjoko, 1997). Hence, there was a stable aggregate
and money supply for the period. According to Nwaobi (1997), in his
article unit root of variables {Dickey-Fuller (DF) test and Augment
Dickey-Fuller (ADF)} tests confirm that the model assumed the
irrelevance of anticipated monetary policy for short-run deviations
of domestic output from its natural level. Therefore, only the
unanticipated components of external price changes in the level of
external economic activity leads to the deviation of domestic output
from

natural

and

observed

that

monetary

tightening

once

anticipated in an economy would have no effect on real domestic

output in the short-run. Also, Anyanwu (1996) in his study of
Nigerias urban unemployment analyzed the monetary and fiscal

policy implication Nigerias full employment level. However, on the

other

hand,

all

the

fiscal

variables

significantly

reduced

unemployment in Nigeria. This except one was highly significant in

reducing the level of unemployment generation in Nigeria than
monetary policy measure. Also, Ajisafe folorunso (2001) in their
study found out that monetary policy rather than fiscal policy
exerts a great influence on economic activity in Nigeria. They
therefore observed that the emphasis of government fiscal actions
on the economy has led to a greater distortion of the Nigerian
economy. Odedokun (1998) in his study also confirms that the
growth of financial aggregates in real terms have positive impact on
economic growth of development countries, irrespective of the level
of economic development attained.

The Classical economists argue that fiscal policy cannot, in the long
term, affect the level of real output (GDP). In opposition to this
assertion, the Keynesian economists argue that fiscal policy can
affect the level of output. (Anderton 2010). The importance of fiscal
policy as an instrument of economic development was first
envisaged by Keynes in his General Theory wherein he showed that
the total national income was an index of economic activity and
brought out the relation of economic activity of total spending
(Emanuele 2003). Hence fiscal policy could be used to influence
economic development proxied by per capita income as this study
would confirm. Previous researchers conducted several studies
regarding the impact of fiscal policy on economic development
through output. However, mixed results were observed due to the
models, countries, research methods and data employed. The
principle conclusion of a working paper by Thomas (2012) on
effectiveness of fiscal policy is short run effectiveness of fiscal policy
turns on the theoretical model of the macro economy that is

adopted. That is because fiscal policy works through AD, and the
impact of AD on the real economy depends on macroeconomic
perspective. The implication is the fiscal policy debate is ultimately
a debate over macroeconomic theory. No theoretical paradigm is
completely satisfying. Comparison of paradigms spotlights the
critical assumptions each makes; provides a better basis of
understanding; and can help guide and improve policy. Empirically,
researches conducted in the developed nations include those of
Alexiou (2009) which provides evidence on the relationship between
economic development and government spending, using panel data
methodologies for seven transition economies in South Eastern
Europe from 1995 to 2005. The study revealed significant results.
More specifically, the evidence generated indicates that four out of
the five variables used, including fiscal policy (government spending
on capital formation) in particular had positive and significant
impact

on

economic

growth.

Yasin

(2003),

exploiting

the

inconclusive evidence of some earlier studies, re-examined the effect

of government spending on economic growth/development using

panel data set from Sub-Saharan Africa. The estimated model
derived from an aggregate production function and had government
spending, foreign assistance for development and trade-openness
explicitly specified as input factors. Fixed and random-effects
techniques were used to estimate the model. The results from both
estimation techniques indicate that government spending, tradeopenness and private investment spending all have positive and
significant effect on economic growth and development. Amanja and
Morrissey (2005) used autoregressive distributed lag (ARDL) model
and ordinary least square methods on time series data to analyse
the relationship between fiscal policy and growth in Kenya between
1964 -2002. The study reveal that productive expenditure has
strong adverse effect on growth while there was no evidence of
distortionary effects on growth of distortionary taxes. Government
investment was found to be beneficial to growth in the long run.
Adefeso et al (2010) examined the impact of fiscal policy on

economic growth in Nigeria from 1970 to 2005, using the errorcorrection technique to test the predictive ability of the endogenous
growth model. The findings of the study were consistent with earlier
empirical

findings

in

other

countries,

which

revealed

that

productive government expenditure has positive effect on economic

growth. In a study to examine the growth effects of public
expenditure for a panel of 30 developing countries over the 1970s
and 1980s, Bose et al (2007) finds that the share of government
capital expenditure in GDP is positively and significantly correlated
with economic growth, while current expenditure is observed to be
insignificant. At the disaggregated level, government investment in
education and total expenditures in education are the only outlays
that were observed to be significantly associated with growth if the
budget

constraint

and

omitted

variables

are

taken

into

consideration. Employing the ordinary least squares estimation

technique, Muritala and Taiwo (2011), investigate the effect of
recurrent and capital expenditure on GDP and finds that both

components of government expenditure have significant positive

effects on the GDP. Using different regression models for time series
data covering the period 1990-2006 on Jordan, Dandan (2011)
finds that government expenditure at the aggregate level has
positive impact on the growth of GDP. By regressing GDP on capital
and recurrent expenditure (after deflating data on all variables by
the

consumer

price

index,

CPI),

Sharma

(2012)

finds

an

insignificant negative relationship between the capital expenditure

and recurrent expenditure, and the real GDP for the Nepalese
economy, attributed to mismanagement and embezzlement of public
funds by government officials and political appointees. Modebe et al
(2012), investigate the impact of recurrent and capital expenditure
on Nigerias economic growth using multiple regression analysis for
data covering the period 1987 to 2010 and find that the impact of
both components of expenditure was statistically insignificant,
though the impact of recurrent expenditure was positive and that of
capital expenditure, negative. However, the findings cannot be relied

upon as the diagnostic statistics prove the estimated model to be

invalid. In another study to examine the relative effectiveness of
monetary and fiscal policies in Nigeria, Aigheyisi (2011), employs
the method of cointegration and error correction using quarterly
data spanning the period 1981Q3 to 2009Q4 and finds that total
government expenditure (acting as proxy for fiscal policy) positively
affected real gross domestic product (RGDP) in the short run.
Burrows (1974) made us to know, while explaining Keynes full
income determination model, that there is a negative relationship
between tax and economic development since tax will reduce
disposable income and hence consumption. Summarily, from the
above, it was discovered that increase in government recurrent
spendings will positively affect output and hence per capita income
and development which is in line with economic theory. When
government investment rises (spendings on construction of roads,
dam, bridges, building of schools, hospitals etc.), it engages workers
and

thereby

reduces

unemployment

rate

and

government

expenditure on unemployment benefits, increases aggregate income,

economic activities and welfare and thus economic development is
realized.

CHAPTER THREE
RESEARCH METHODOLOGY

3.0 INTRODUCTION
This chapter states the various methods used in research, as well
as the population of the study, and sampling techniques used in
determining the sample size for the research. How data was
collected and analysed is also discussed in this chapter.
The main objectives of this research were achieved through
quantitative methods, as inferential statistics were used to
measure the level of accuracy and validate responses from the
respondents in accordance to the objectives of the research.

3.1 STUDY AREA

Abuja, the capital of Nigeria was the study area for this research.
It is located in the centre of Nigeria, within the Federal Capital
Territory (FCT). Abuja is a planned city, and was built mainly in
the 1980s. It officially became Nigeria's capital on 12 December
1991, replacing Lagos, though the latter remains the country's

most populous city. At the 2006 census, the city of Abuja had a
population of 776,298, making it one of the ten most populous
cities in Nigeria. Abuja has witnessed a huge influx of people into
the city; the growth has led to the emergence of satellite towns
such as Karu Urban Area, Suleja, Gwagwalada, Lugbe, Kuje and
smaller settlements to which the planned city is sprawling. The
unofficial metropolitan area of Abuja has a population of well
over three million and comprises the fourth largest urban area in
Nigeria, surpassed only by Lagos, Kano and Ibadan.
3.2 RESEARCH DESIGN
The research design used for this study was the descriptive
research design. Since data characteristics were described using
frequencies and percentages, and no manipulations of data or
variables were necessary, the researcher chose this research
design. The researcher discarded other alternatives such as the
causal and explanatory research designs, because accurate
findings and data analysis may not be achieved.

3.3 POPULATION OF THE STUDY

The population for this study are employees of the Central Bank
of Nigeria, Abuja. The population figure for the study was 32
respondents,

comprising

of

CBN

officials

from

various

departments such as operations, finance, administration etc.

The reason for choosing The Abuja office is that it has a fairly
large number of CBN Officials that can fairly reflect the true state
of TSA in Nigeria economy.

3.4 POPULATION SIZE AND TECHNIQUE

Since the population for the study was not large, and data could
be collected from all the respondents, the researcher adopted the
census sampling technique to successfully complete the study.
All 32 respondents were used for this study.

3.5 DATA COLLECTION METHOD

Data for this study was collected from the respondents through
the use of questionnaires. Questionnaires were shared to all 32
respondents of the organization, and field surveys through
responses to questions in the questionnaire served as the main
source of primary data for this study.
Other information were collected from text books, journals and
other secondary sources of data.
3.6 DATA ANALYSIS
Various analytical tools and software such as pie charts, bar
charts, tables, and Statistical Package for Social Science (SPSS)
software were used in analysing data for this study.
Data collected were analysed using frequencies and percentages.
These frequencies and percentages enabled the researcher to
clearly represent true data characteristics and findings with a
great deal of accuracy. Interpretation and analysis of data was

also used to describe items in tables and charts used for this
study.

3.7 LIMITATION
Since this study is a descriptive research, validation of data
characteristics and variables described maybe limited to some
extent as other statistical tools such as arithmetic mean,
variance, standard deviation, and the central limit theorem were
not applied to further prove the accuracy of findings in this
study. The researcher only used descriptive statistical tools such
as frequencies and percentages to describe data characteristics
and findings.

CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
This

chapter

is

devoted

to

the

presentation,

analysis

and

interpretation of the data gathered in the course of this study. The

data are based on the number of copies of the questionnaire
completed and returned by the respondents. The data are presented
in tables and the analysis is done using the Pearson correlation
test.

BIO DATA OF RESPONDENTS

Table 1 sex of respondents

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

male

16

50.0

50.0

50.0

female

16

50.0

50.0

100.0

Total

32

100.0

100.0

Source: field survey, February, 2016.

Table 1 above shows the gender distribution of the respondents used for this
study.
16 respondents which represent 50.0percent of the population are male.
16 respondents which represent 50.0percent of the population are female.

Table 2 age grade of respondents

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

below 20 years

9.4

9.4

9.4

21-30 years

18.8

18.8

28.1

31-40 years

25.0

25.0

53.1

41-50 years

10

31.2

31.2

84.4

51-60years

15.6

15.6

100.0

32

100.0

100.0

Total

Source: field survey, February, 2016.

Table 2 above shows the age grade of the respondents used for this study.

3 respondents which represent 9.4 percent of the population is below 20yrs.6

respondents which represent 18.8percent of the population are between 2130yrs.8 respondents which represent 25.0 percent of the population are
between 31-40yrs.10 respondents which represent 31.2 percent of the
population are between 41-50yrs while the remaining 5 respondents which
represent 15.6 percent of the population are between 50-60yrs.

Table 3 educational qualification of respondents

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

WASSCE/SSCE

12.5

12.5

12.5

OND/HND/BSC

10

31.2

31.2

43.8

PGD/MSC/PHD

10

31.2

31.2

75.0

25.0

25.0

100.0

32

100.0

100.0

OTHERS
Total

Source: field survey, February, 2016.

Table 3 above shows the educational background of the respondents used for
this study.
Out of the total number of 32 respondents, 4 respondents which represent 12.5
percent of the population are FSLC holders. 10 respondents which represent
31.2percent of the population are SSCE/WASSCE holders.10 respondents
which represent 31.2percent of the population are OND/HND/BSC holders

while the remaining 8 respondents which represent 21.0 percent of the

population are MSC/PGD/PHD holders

Table 4 Marital status of respondents

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

single

10

31.2

31.2

31.2

married

20

62.5

62.5

93.8

divorced

3.1

3.1

96.9

widowed

3.1

3.1

100.0

32

100.0

100.0

Total

Source: field survey, February, 2016.

Table 4 above shows the marital status of the respondents used for this study.

Out of the total number of 32 respondents, 10 respondents which represent

31.2 percent of the population are single.20 respondents which represent 62.5
percent of the population are married.1 respondent which represent 3.1
percent of the population is divorced while the remaining 1 respondent which
represent 3.1 percent of the population iswidowed.

Table 5 position of respondents

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

junior staff

20

62.5

62.5

62.5

senior staff

12

37.5

37.5

100.0

Total

32

100.0

100.0

Source: field survey, February, 2016.

Table 5 above shows the level or position of respondents used for this study.
Out of the 32 respondents, 20 which represent 62.5 percent of the population
are junior staff while the remaining 12 employees which represent 37.5 percent
of the population are senior staff.

Table 6 years of service of respondents

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

0-2 years

25.0

25.0

25.0

3-5 years

11

34.4

34.4

59.4

6-11 years

10

31.2

31.2

90.6

9.4

9.4

100.0

32

100.0

100.0

above 12 years
Total

Source: field survey, February, 2016.

Table 5 above shows the years of experience of the respondents used for this
study.
Out of the 32 respondents, 8 which represent 25.0percent of the population
have had 0-2yrs experience at work.11 which represent 34.4 percent of the
population have had 3-5yrs experience.10 which represent 31.2percent of the
population have had 6-11yrs experience while the remaining 3 employees
which represent 9.4 percent of the population have had more than 12yrs
experience.

TABLES BASED ON RESEARCH QUESTIONS

Table 7 fiscal policy is good for the economy of nigeria

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

strongly agree

10

31.2

31.2

31.2

agree

15

46.9

46.9

78.1

undecided

15.6

15.6

93.8

disagree

6.2

6.2

100.0

32

100.0

100.0

Total

Source: field survey, February, 2016.

Table 7 above shows the responses of respondents that fiscal policy is good for
the economy of Nigeria
10 respondents which represent 31.2 percent of the population strongly agreed
that fiscal policy is good for the economy of Nigeria.15 respondents which
represent 38.8percent of the population agreed that fiscal policy is good for the
economy of Nigeria.5 respondents which represent 15.6 percent of the
population were undecided while the remaining 2 respondents which represent
6.2 percent of the population disagreed that fiscal policy is good for the
economy of Nigeria.

Table 8 Application of adequate fiscal policies would minimize extravagancy by

Government.
Cumulative
Frequency
Valid

strongly agree

Percent

Valid Percent

Percent

10

31.2

31.2

31.2

agree

25.0

25.0

56.2

undecided

3.1

3.1

59.4

10

31.2

31.2

90.6

9.4

9.4

100.0

32

100.0

100.0

disagree
strongly disagree
Total

Source: field survey, February, 2016.

Table 8 above shows the responses of respondents that application of fiscal

policy would help minimize extravagancy by the government.
10 respondents which represent 31.2 percent of the population strongly agreed
that application of fiscal policy would help minimize extravagancy by the
government.8 respondents which represent 25.0percent of the population
agreed that application of fiscal policy would help minimize extravagancy by the
government.1 respondent which represent 3.1 percent of the population is
undecided.10 respondents which represent 31.2 percent of the population
disagreed that application of fiscal policy would help minimize extravagancy by
the government while the remaining 3 respondents which represent 9.4 percent
of the population strongly disagreed that application of fiscal policy would help
minimize extravagancy by the government.

Table 9 fiscal policy will help minimize corruption, enthrone transparency and
accountability in Nigeria
Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

strongly agree

18

56.2

56.2

56.2

agree

10

31.2

31.2

87.5

undecided

6.2

6.2

93.8

strongly disagree

6.2

6.2

100.0

32

100.0

100.0

Total

Source: field survey, February, 2016.

Table 9 above shows the responses of respondents fiscal policy will help
minimize corruption, enthrone transparency and accountability in Nigeria.
18 respondents which represent 56.2 percent of the population strongly agreed
that fiscal policy will help minimize corruption, enthrone transparency and
accountability in Nigeria.
10 respondents which represent 31.2percent of the population agreed that
fiscal policy will help minimize corruption, enthrone transparency and
accountability in Nigeria.2 respondents which represent 6.2 percent of the
population were undecided while the remaining 2 respondents which represent
6.2 percent of the population strongly disagreed that fiscal policy will help
minimize corruption, enthrone transparency and accountability in Nigeria.

Table 10 implementation offiscal policy influences the stabilization of the economy

Cumulative
Frequency
Valid

Percent

Valid Percent

Percent

strongly agree

15

46.9

46.9

46.9

agree

10

31.2

31.2

78.1

undecided

9.4

9.4

87.5

disagree

6.2

6.2

93.8

strongly disagree

6.2

6.2

100.0

32

100.0

100.0

Total

Source: field survey, February, 2016.

Table 10 above shows the responses of respondents that implementation of

fiscal policy influences the stabilization of the economy.
15 respondents which represent 46.9 percent of the population strongly agreed
that implementation of fiscal policy influences the stabilization of the
economy.10 respondents which represent 31.2percent of the population agreed
that implementation of fiscal policy influences the stabilization of the
economy.3 respondents which represent 9.4 percent of the population were
undecided.2 respondents which represent 6.2 percent of the population
disagreed that implementation of fiscal policy influences the stabilization of the
economy while the remaining 2 respondents which represent 6.2 percent of the
population strongly disagreed that implementation of fiscal policy influences
the stabilization of the economy.

RESEARCH HYPOTHESIS
Ho: Implementation of fiscal policy does not stabilize the economy.
Hi: Implementation of fiscal policy stabilizes of the economy
Level of significance: 0.05
Decision rule: reject the null hypothesis if the p-value or r
calculated is less than the level of significance or r tabulated.

Correlations
Application of

Implementation of fiscal policy

stabilizes the economy

Implementation of

fiscal policy

fiscal policy

prevents

stabilizes the

extravagancy by

economy

government

Pearson Correlation

prevents extravagancy by
government

Pearson Correlation
Sig. (2-tailed)
N

.867**
.000

Sig. (2-tailed)
N

Application of fiscal policy

32

32

**

.867

.000
32

32

**. Correlation is significant at the 0.05 level (2-tailed).

Conclusion based on the decision rule:

Since the p-value or r calculated (0.000) is less than the level of
significance or r tabulated (0.05), we reject the null hypothesis
and accept the alternative thereby concluding that the effective
Implementation of fiscal policy stabilizes of the economy
NOTE: there is a strong positive relationship of 0.867 between those
respondents that believe that Implementation of fiscal policy
stabilizes of the economyand those who feel that the application of
fiscal policy prevents extravagancy by government.

CHAPTER FIVE
FINDINGS, CONCLUSION AND RECOMMENDATION
The objectives of the study were to

1. To examine the impact of fiscal policies in stabilization of the

Nigeria economy.
2. To examine the factors influencing the proper implementation
of various fiscal policies in Nigeria.
3. To identify the consequences of the implemented fiscal policies
by the government of Nigeria.
Findings from the study revealed the following
1. Fiscal policy is good for the economy of Nigeria
2. Application of adequate fiscal policies would

minimize

extravagancy by government
3. Fiscal policy will help minimize

enthrone

corruption

transparency and accountability in Nigeria.

4. Implementation of fiscal policy influences the stabilization of
Nigerian economy

QUESTIONNAIRE ADMINISTRATION
INSTRUCTION: Please endeavor to complete the questionnaire by ticking the

correct answer (s) from the options or supply the information required where
necessary.

SECTION A: Personal Information/Data

1. Gender
a. Male
b. Female
2. Age grade
a. Below 20yrs
b. 21-30yrs
c. 31-40yrs
d. 41-50yrs
e. 51-60yrs
f. Above 60yrs
3. Educational qualification
a. WASCE/SSCE
b. OND/HND/BSC
c. MSC/PGD/PHD
d. Others
4. Marital status
a. Single
b. Married
c. Divorced
d. Widowed
5. Experience/years of service
a. 0-2yrs
b. 3-5yrs
c. 6-11yrs
d. Above 12yrs
6. Level/position
a. Junior staff
b. Senior staff
SECTION B:

Questions on the impact of fiscal policies in the stabilization of the Nigerian

economy
7. Fiscal policy is good for the economy of Nigeria.
a. Strongly agreed

b.
c.
d.
e.

Agreed
Undecided
Disagreed
Strongly disagreed

8. Adequate application fiscal policies would help minimize extravagancy by

government.
a. Strongly agreed
b. Agreed
c. Undecided
d. Disagreed
e. Strongly disagreed
9. Fiscal policy will help minimize corruption, enthrone transparency and
accountability in the government.
a. Strongly agreed
b. Agreed
c. Undecided
d. Disagreed
e. Strongly disagreed
10.Implementation of fiscal policy influences the stabilization of Nigerian economy.
a. Strongly agreed
b. Agreed
c. Undecided
d. Disagreed
e. Strongly disagreed
11.Briefly outline other benefits of fiscal policy in Nigeria.
_ _ ___ __ _ _ _ __ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
_ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ __ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ _ _ __ _ _ _ _ __ _ _ _

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