Poverty Alleviation and Fiscal Policy in Nigeria

Abstract

The fiscal policy suggests that government play a special role in alleviation of poverty in Nigeria. We look for this special role by examining the relationship between poverty rate and fiscal policy as well as economic growth and inflation by finding the stationary state of our data using the Augmented Dickey Fuller statistical test and Phillip Perron statistical test. The emerging result of the unit root test from the ADF test shows that all the variables became stationary after the first difference except Personnel Income Tax (PIT), Gross Domestic Product (GDP) and Exchange Rate (EXR) that are found to be stationary after the second difference. On the other hand, the PP-test indicates that all the variables became stationery after the first difference. Therefore, we carried out a co integration test to find out if there exists a long run relationship among the variables. Our result shows that there exist four (4) co-integrating equations. In addition, in order to find the short and long run effects of fiscal policy on poverty alleviation; we employed the Ordinary Least Square (OLS) and OLS-ECM estimating techniques. Our regression result shows that fiscal policy alone is not effective in alleviation of poverty and out put channel is effective in reducing the incidence of poverty in Nigeria both in the short and long run. However, the lag value of the ECM indicates that there exist a permanent long run ship between Poverty Index and fiscal policy as well as inflation and economic growth. Nevertheless, when we estimated the long run relationship, our results show that only the out put level and the fiscal policy variables have significant effects on poverty. Further more; our result indicates that in the short and long run, there exists a stable and predictable relationship between the parameter estimates of our model. Finally, only the out put level and the fiscal policy variables were found significant both in the short and long run as such we concluded that in Nigeria case, to effectively reduce the rate of poverty, fiscal policies variables which have effects on social and economic infrastructures could be employed as well as policies measures that will have positive effects on out put or will improve the performance of the economy could be employed.