Fiscal Policy and Poverty Reduction; the Nigeria Perspective

Abstract

Fiscal policy is a financial tool used by the government to correct expected economic disturbances and reset the economy to an equilibrium state. Based on this course, the current study investigates fiscal policy and its effect on poverty reduction in Nigeria from the year 1970-2015. The model that was adopted for the study is the Autoregressive distributed lag model with the idea of capturing the dynamic responses of the endogenous variable caused by changes in the observed variable lags and the contemporaneous and lagged values of the other explanatory variables. The test for the presence of the Unit root was conducted using both Augmented Dickey-Fuller and Phillip Perron. The result shows that in the ADF result that all the variable were stationary at first difference while only the Overseas Development Assistance (ODA) was stationary at levels while the Phillip Perron result shows that only Other Government Revenue (OGR) and Overseas Development Assistance (ODA). The Narayan bound test co-integration test was conducted in a graphical form, following the result, there exists a long-run relationship in the model. The ARDL test which comprises of the long-run estimate and short-run reveals that the estimated coefficients of the dynamic models are smaller in the short-run as compare to the long-run estimate. Secondly, the diagnostic test shows that the error terms of the short-run models are normally distributed and are homoscedastic. Majority of the findings are revealed in the work. Based on this, the study recommends; focus more on the use of other government revenue sources (non-tax income) in the finance of their expenditures and implementation of programmes.