The Effect of Fiscal Policy on the Macroeconomic Condition of Nigeria: A Case Study of Economic Growth, Employment, and Inflation from 1991 to 2020

doi:10.7176/ppar/11-8-01

Abstract

The macroeconomic condition of a country constitutes an indicator of the economic welfare of the country, as well as a yardstick for measuring the performance of a government. Given that the fiscal policy constitutes a vital instrument of the government in influencing the macroeconomic condition of the country, this paper seeks to assess the effect that Nigeria’s fiscal policy has had on the macroeconomic condition of the country, with a focus on economic growth, employment, and inflation. While the variables of fiscal policy which were used as independent variables are total government revenue, recurrent expenditure, capital expenditure, Net Domestic Financing, and Net Foreign Financing, the dependent variables include economic growth, unemployment rate, and inflation rate in Nigeria. Data of these variables, from 1991 to 2020, were gathered and analysed using the Ordinary Least Square (OLS) regression analysis. Findings from these analyses show that Nigeria’s fiscal policy has a significant impact on its economic growth, with a regression value (R2) of 0.655, while the impact on unemployment and inflation rates were insignificant, with regression values of 0.05 and 0.305, respectively. Given the findings from the analysis, coupled with the low economic grate over the past five years, with an average Gross Domestic Product (GDP) growth rate of 1.19%, this paper recommends that the Nigerian government focuses its fiscal policy on influencing and increase the growth rate of the economy by increasing its revenue and reducing its recurrent expenditure. Keywords: Fiscal Policy, Macroeconomic Condition, Economic Growth, Employment, Inflation DOI: 10.7176/PPAR/11-8-01 Publication date: October 31 st 2021

Highlights

1.1 Research Background The growth, welfare, and development of an economy is a phenomenon that is of paramount interest to the government, population, and other relevant stakeholders of a nation
According to Weinstock (2021), a change in the level of expenditure or revenue of the state can alter the economic outcome of a nation by either increasing or decreasing the level of economic activities. This increase or decrease is reflected via the macroeconomic condition of the economy, which is measured or assessed via indicators, which cut across leading indicators, lagging indicators, and coincident indicators (Izani & Ahmad, 2004)
The result shows that the regression value (R2) of the economic growth is 0.655, which means that 66% of www.iiste.org the variation in the economic growth of Nigeria can be explained by fiscal policy, which is jointly represented by all the independent variables in model one, at 5% level of significance

Summary

Introduction

1.1 Research Background The growth, welfare, and development of an economy is a phenomenon that is of paramount interest to the government, population, and other relevant stakeholders of a nation. While several instruments are often adopted and employed to achieve this purpose, two of the most common instruments are monetary and fiscal policies While these policies are both instruments used in conditioning the macroeconomic environment and steering the economy of a nation towards growth, monetary policy entails influencing and steering the economy towards growth via changes in the base rate of interest while fiscal policy entails influencing the steering the economy towards growth via the use of spending and taxation of the government (Adelina-Geanina, 2006; Horton & ElGanainy, 2009; Abdullahi & Adeiza, 2019). It can be deduced that the impact of a fiscal policy can be adjudged by the assessment of its influence on these macroeconomic indicators

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