THE I MPACT OFFI SCALPOLI CI ESI N STABI LI ZATI ON OFTHE NI GERI AN ECON ONOM OMY
BY
CHA HAPTER ONE
I NTRODUCTI ON
1. 1 BACKGROU OUND TO THE STUDY
Thegr owt h andst abi l i z at i on oft heNi ger i an economyhasnotbeen st abl e ov er t he ye ar s as a r es ul t ,t he count ry’ s ec onomy my has wi t nesses so many shocks and di st ur bances bot hi nt er nal l y and ext ernal l yovert hedecades.I nt ernal l y ,t heunst abl ei nvest mentand consumpt i on pat t er ns as wel las t he i mpr operi mpl eme ment at i on of publ i cpol i ci es,changesi nf ut ur eexpect at i onsand t heaccel er at or ar e some me oft he f act ors r esponsi bl ef or i t .Si mi l ar l y ,t he ext ernal f act orsi dent i fiedar ewa war s,r evol ut i ons,popul at i on growt hr at esand mi gr at i on, t ec hnol ogi cal t r ansf er and change s as wel l as t he opennessoft hecount ry’ sNi ger i aneconomy myar esome meoft hef act or s t hatcoul daffectt hei mpl eme ment at i onoffiscalpol i cy . Thecycl i calfluct uat i onsi nt hecount ry’ seconomi cact i vi t i eshasl ed t ot he per i odi cali ncr ease i nt he count ry’ s unemp mpl oyme ment and
CHA HAPTER ONE
I NTRODUCTI ON
1. 1 BACKGROU OUND TO THE STUDY
Thegr owt h andst abi l i z at i on oft heNi ger i an economyhasnotbeen st abl e ov er t he ye ar s as a r es ul t ,t he count ry’ s ec onomy my has wi t nesses so many shocks and di st ur bances bot hi nt er nal l y and ext ernal l yovert hedecades.I nt ernal l y ,t heunst abl ei nvest mentand consumpt i on pat t er ns as wel las t he i mpr operi mpl eme ment at i on of publ i cpol i ci es,changesi nf ut ur eexpect at i onsand t heaccel er at or ar e some me oft he f act ors r esponsi bl ef or i t .Si mi l ar l y ,t he ext ernal f act orsi dent i fiedar ewa war s,r evol ut i ons,popul at i on growt hr at esand mi gr at i on, t ec hnol ogi cal t r ansf er and change s as wel l as t he opennessoft hecount ry’ sNi ger i aneconomy myar esome meoft hef act or s t hatcoul daffectt hei mpl eme ment at i onoffiscalpol i cy . Thecycl i calfluct uat i onsi nt hecount ry’ seconomi cact i vi t i eshasl ed t ot he per i odi cali ncr ease i nt he count ry’ s unemp mpl oyme ment and
i nflat i on r at es as wel las t he ext ernalsect ordi sequi l i bri a( Gbosi , 2001) .I not herwor ds,fiscalpol i cyi samaj oreconomi mi cst abi l i zat i on weapon t hati nvol ves measur et aken t or egul at e and cont r olt he vol ume,costand avai l abi l i t y as wel las di r ect i on ofmoney i n an ec onomy myt oachi ev esome mespeci fiedmacr oeconomi mi cpol i cyobj ec t i ve and t o count er act undes i r abl et r ends i nt he Ni ge r i an ec onomy my ( Gbosi ,1998) .Ther ef ore,t heycannotbel ef tt ot hemar ketf orcesof dema mand and suppl y as wel las ot heri nst r ument s ofst abi l i z at i on such as monet ary and ex changer at e pol i ci esamo mong ot her s,ar e use dt ocount er actar epr obl ems msi dent i fied( Ndi yoandUdah 2003) . Thi smayi ncl udeei t heran i ncr easeoradecr easei nt axesaswel l asgov er nmentexpendi t ur eswhi ch const i t ut et hebedr ock offiscal pol i cybuti nr eal i t y ,governmentpol i cyr equi r esami xt ur eofbot h fisc al andmonet ary pol i cy i nst r ument st o st abi l i z e an ec onomy my becausenoneoft hesesi ngl ei nst r ument scancur eal lt hepr obl ems i naneconomy my( Ndi yoandUdah,2003) .
The Ni ger i a economy st ar t ed exper i enci ng r ecessi on f or m ear l y 1980st hatl eadst oadepr essi oni nt hemi d1980s.Thi sdepr essi on cont i nuedunt i lear l y1990swi t houtr ecover i ngf r om i t .Assuch,t he governmentcont i nual l yi ni t i at ed fiscalpol i cymeasur est hatwoul d t ackl e,st abi l i zeandover comet hedwi ndl i ngeconomy .Dr awi ngt he exper i enceoft hegr eatdepr essi on,gover nmentpol i cymeasur et o cur bt he depr essi on was i n t he f or m of i ncr ease gover nment spendi ng( Nagayasu,2003) .Acc or di ngt o Okunr oumu,( 1993) ,t he management of t he Ni ger i an economy i n or der t o ac hi eve macr oeconomi cst abi l i t yhasbeenunpr oduct i veandnegat i vehence onecannotsayt heNi ger i aeconomyi sper f ormi ng.Thi si sevi dence i n t he adver se i nflat i onary t r end, gov er nment fiscal pol i ci es , undul at i ng f or ei gn exc hange r at es, t he f al l and r i se of gr oss domes t i c pr oduct ,unf avour abl e bal ance ofpayment s as wel las i ncr easi ng unempl oyment r at es ar e al l sympt oms of gr owi ng macr oeconomi ci nst abi l i t y .Assuch,t heNi ger i aeconomyi sunabl e t of unct i on wel li n an envi r onmentbecause t her ei sl owcapaci t y
ut i l i zat i on at t ri but edt oshort agei nf orei gn exchangeaswel last he vol at i l e andunpr edi ct abl e gover nment fiscal pol i ci es i n Ni ger i a ( I saksson,2001) . 1. 2 STATEMENTOFTHE PROBLEM
I ti s an es t abl i shed f act t hat mar ket mec hani sm cannot sol el y per f orm al lt heeconomi cf unct i onsi nacount ry;andassuchpubl i c pol i cy l i kefiscalpol i cy i sr equi r ed t o st abi l i ze,corr ect ,gui deand suppl ementt hemar ketf or ces.Fi scalpol i cyi soneofsuch pol i ci es t hatgove r nmentusest ocorr ectmar keti mper f ect i onsand f ai l ur e. I nNi ger i a,government satvari oust i meshad usedt hesepol i ci est o st abi l i z eandmanaget heeconomywi t h avi ew t oachi evi ngdesi r ed mac r oe conomi c obj ect i ves such as pr omot i ng empl oyment generat i on,ensuri ngeconomi cst abi l i t y ,mai nt ai ni ngpri cest abi l i t y and bal anceofpaymentvi abi l i t y ,ensuri ngexchanger at est abi l i t y and mai nt ai ni ng st abl e ec onomi c gr owt h.The fisc alpol i cyt hr ust use di n mani pul at i ngt heeconomydependson t heobj ec t i ve st hat needt obeachi eve datanyt i meper i od.Gover nmenti nt er vent i on i n
t he economy t hr ough fisc alpol i cy has been t o mani pul at et he r ece i pt and expendi t ur e si des ofi t s budge ti n or der t o achi ev e cert ai n nat i onalobj ect i ves.Ther eal i t yhoweveri st hatof t en,t here havebeenwast ages,somespendi nghasbeenpol i t i ci z ed,andt her e has bee n hi gh l evel mi sappr opr i at i on, mi smanagement and cor r upt i on.Howev er ,t he r es ear cheri s exami ni ng t he i mpactof fiscalpol i ci esi nst abi l i zat i onoft heNi geri aeconomy. 1. 3 OBJECTI VESOF THE STUDY
Thef ol l owi ngar et heobj ect i vesoft hi sst udy: 1.Toexami net hei mpactoffiscalpol i ci esi n st abi l i zat i on oft he Ni ger i aeconomy . 2.Toexami net hef act or si nfluenci ngt hepr operi mpl ement at i on ofv ar i ousfis calpol i c i e si nNi g er i a. 3.Toi dent i f yt heconsequencesoft hei mpl ement edfiscalpol i ci es byt hegover nmentofNi ger i a. 1. 4 RESEARCH QUESTI ONS
1.Whati st he i mpactoffiscalpol i ci es i n st abi l i zat i on oft he Ni ge r i aeconomy? 2.Whatar et hef act or si nfluenci ngt hepr operi mpl ement at i on of var i ousfiscalpol i ci esi nNi ger i a? 3.Whatar et heconse quence soft hei mpl ement edfisc alpol i ci es byt hegover nmentofNi ger i a? 1. 6 SI GNI FI CANCE OF THE STUDY
Thef ol l owi ngar et hesi gni ficanceoft hi sst udy: 1.The out come oft hi s st udy wi l lbe a usef ulgui de f or t he governmentofNi ger i a,st akehol deri nt hefinanci alsect orand t hegener alpubl i con how fiscalpol i ci escan beusedasat ool f ort hest abi l i zat i onoft heNi geri aneconomy . 2.Thi sr esear ch wi l lal so se rve as a r esour ce base t o ot her schol ars and r esear cher si nt er est ed i n carr yi ng outf ur t her r esearc hi nt hi s fiel d subsequent l y ,i fappl i ed wi l lgo t o an ext entt opr ovi denew expl anat i ont ot het opi c. 1. 7 SCOPE/LI MI TATI ONS OF THE STUDY
Thi s st udy on t he i mpactoffiscalpol i ci es i n st abi l i z at i on oft he Ni ger i a economy wi l lcove rvar i ous fiscalpol i ci es t hathas been adopt ed byt hegover nmentofNi ger i aconsi der i ngi t seffecton t he st abi l i zat i onofNi geri aneconomy . LI MI TATI ONSOFSTUDY
Fi nanci al const r ai nt -I nsuffici ent f und t ends t o i mpede t he
effici encyoft her esearc heri n sour ci ngf ort her el evantmat er i al s, l i t er at ur e or i nf ormat i on and i nt he pr ocess ofdat a col l ect i on ( i nt ernet ,quest i onnai r eandi nt ervi ew) . Ti meconst r ai nt -Ther esear cherwi l lsi mul t aneousl yengagei nt hi s
st udywi t h ot heracademi cwor k.Thi sconsequent l ywi l lcutdown ont het i medevot edf ort her esear chwor k.
REFERENCES empor ar yMacr oeconomi cPr obl emsandSt abi l i zat i on Gbosi ,A. N.Cont Pol i c i esi nNi ger i a,( 2001) ,Ant ovi cVent ur es,PortHar court .
nanc i alCr i si s and t he Ni ger i an Ec onomy Gbosi , A. N. Banks, Fi Today,( 1998) ,Corporat eI mpr essi onPubl i sher s,Owerr i .
I saksson, A. Fi nanci al l i ber al i z at i on, f or ei gn ai d and capi t al nal of mobi l i t y: Evi dence f r om90 dev el opi ng count r i es, Jour I nt e r nat i o nalFi nanc i alMar ke t s ,I ns t i t ut i o ns and Mo ne y ,11( 2001) , 309-338. MF Nagayasu,J.The effici ency oft he Japanes e equi t y mar ket ,I Wor ki ngPaper ,No.142June,( 2003) .
N. A. Ndi yo and E. B. Udah, Dynami cs ofmonet ar y pol i cy and g er i an pover t yi nasmal lopeneconomy:TheNi ger i an exper i ence,Ni Jour nalEc onomi c sandDe v el opmentMat t er s ,2( 4)( 2003) ,4068. Okunr ounmu, T. O. , Fi sc al pol i ci es of t he f eder al gov er nment r al Bank of Ni ger i a, Ec onomi c and st r at egi es si nce 1986, Cent Fi nanc i alRe vi e w,31( 4)( 1993) ,340350.
CHAPTER TWO
REVI EW OFRELATED LI TERATURE 2. 1.I nt r oduct i on
Thegr owt handdevel opmentoft heNi ger i aneconomyhasnotbeen st abl eovert heyear sasar esul t ,t hecount ry’ seconomyhas wi t nessessomanyshocksanddi st ur bancesbot hi nt er nal l yand ext ernal l yovert hedecades.I nt ernal l y,t heunst abl ei nvest mentand consumpt i onpat t er nsaswel last hei mpr operi mpl ement at i onof publ i cpol i ci es,changesi nf ut ur eexpect at i onsandt heaccel erat or ar es omeoft hef ac t or sr e spons i bl ef ori t .Si mi l ar l y ,t hee xt e r nal f act or si dent i fiedar ewar s,r evol ut i ons,popul at i ongrowt hr at esand mi grat i on,t echnol ogi calt r ansf erandchangesaswel last he opennessoft hecount ry’ sNi ger i aneconomyar esomeoft hef act or s r esponsi bl e.Thecycl i calfluct uat i onsi nt hecount ry’ seconomi c ac t i v i t i e shasl e dt ot hepe r i odi c ali nc r e as ei nt hecount r y’ s unempl oymentandi nflat i onr at esaswel last heext er nalsect or di sequi l i bri a( Gbosi ,2001) .I notherwor ds,fiscalpol i cyi samaj or economi cs t abi l i sat i onweapont hati nvol vesmeasur et akent o
r egul at eandcont r olt hevol ume,costandavai l abi l i t yaswel las di r ect i onofmoneyi naneconomyt oachi ev esomespeci fied macr oeconomi cpol i cyobj ect i veandt ocount er actundesi r abl e t r endsi nt heNi ger i aneconomy( Gbosi ,1998) .Ther ef ore ,t hey cannotbel ef tt ot hemar ketf or cesofdemandandsuppl yaswel las ot heri nst r ument sofst abi l i z at i onsuchasmonet aryandexchange r at epol i ci esamongot her s,ar eusedt ocount er actar epr obl ems i dent i fied( Ndi yoandUdah2003) .Thi smayi ncl udeei t heran i ncr easeoradecr easei nt axesaswel lasgover nmentexpendi t ur es whi chconst i t ut et hebedr ockoffiscalpol i cybuti nr eal i t y , gove r nmentpol i cyr equi r esami xt ur eofbot hfiscalandmonet ary pol i cyi nst r ument st ost abi l i zeaneconomybecausenoneoft hese si ngl ei nst r ument scancur eal lt heprobl emsi naneconomy( Ndi yo andUdah,2003) .TheNi ger i aeconomyst art edexper i enci ng r ecessi onf orm ear l y1980st hatl eadst oadepr essi oni nt hemi d 1980s.Thi sdepr essi oncont i nuedunt i lear l y1990swi t hout r ecoveri ngf r om i t .Assuch,t hegovernmentcont i nual l yi ni t i at ed
pol i cymeasur est hatwoul dt ackl eandove r comet hedwi ndl i ng economy .Dr awi ngt heexper i enceoft hegr at edepr essi on, gove r nmentpol i cymeasur et ocur bt hedepr ess i onwasi nt hef or m ofi ncr easegover nmentspendi ng( Nagayasu,2003) .Accor di ngt o Okunr oumu,( 1993) ,t hemanagementoft heNi ge r i anec onomyi n or dert oachi evemacr oeconomi cst abi l i t yhasbeenunpr oduct i ve andnegat i vehenceonecannotsayt heNi ger i aeconomyi s perf ormi ng.Thi si sevi dencei nt headver sei nflat i onaryt r end, gover nmentfiscalpol i ci es,undul at i ngf orei gnexchangerat es,t he f al landri seofgrossdomest i cpr oduct ,unf avour abl ebal anceof payment saswel lasi ncr easi ngunempl oymentr at esar eal l sympt omsofgr owi ngmacr oeconomi ci nst abi l i t y .Assuch,t he Ni ger i aeconomyi sunabl et of unct i onwel li nanenvi r onmentwer e t he r ei sl o wc apac i t yut i l i z at i onat t r i but e dt os hor t ag ei nf or e i gn exchangeaswel last hevol at i l eandunpr edi ct abl egover nment pol i ci esi nNi geri a( I saksson,2001) ,
2. 2.THEORETI CALFRAMEWORK
Fi scalt heor yoft hepr i cel evel ( FTPL)
Thepr i cel eveli sdefinedast hei nver seoft heval ueofmoney:how much moneyi tt akest obuya gi ve n basketofgoods.Bycont r ast , t heFTPLi saboutt hei nver seoft heval ueofgover nmentdebt .Thi s i s expl ai ned part i cul ar l y cl ear l yi n Cochr ane ( 2005) . As Bui t er ( 2002)poi nt sout ,t her ei snor easoni ngener alf ort heval ueofdebt and t heval ueofmoneyt ocoi nci de.Tot heext entt hathousehol ds ant i ci pat eagover nmentdef aul t ,t heymayt r adegover nmentdebtat a di scount ,wi t houtnecess ari l yaffect i ngt heval ueofmoney .Thi s cr i t i ci sm i s part i cul ar l y ser i ous when t he cent r albank adopt sa monet arypol i cyt hatr ul esoutmonet i zat i on ofgover nmentdebt .As an exampl e,consi dert hecasei n whi ch t hecent r albank adopt sa const antmoneysuppl yr ul eand doesnotengagei n open mar ket
oper at i ons.I nt hi scase,t her ei snol i nk bet ween gover nmentdebt andmoney ,andnor eason whyamat ur i ngTBi l lwi t h af aceval ue of$1, 000 shoul dt r adeatparwi t ht en $100 not esi ss ued by t he ce nt r albank.Mat ur i ng debtand moneywi l lonl yt r ade atpari f fiscalpol i cyi sruni nsuchawayt hatt hegover nmentwi l lhavet he appr opr i at eamount sofmoneyt or epayi t sdebt ,i ndependent l yof t hepri cel evel :t hi sr equi r esr ealt axr evenuest oadj ustt opri ces, vi ol at i ng t he cent r alassumpt i on oft he FTPL.The samecr i t i ci sm doesnotappl ywhent hemonet arypol i cyoft hecent r albankal l ows unl i mi t ed monet i zat i on ofdebt ,asi nt hecase ofan i nt er estr at e peg.I nt hi scase,t hecent r albank commi t st oexchangear bi t r ary amount sofmoneyandoneper i odgov er nmentdebtatafixe dpr i ce . Thi scommi t menti snoti nconsi st entwi t hasecondcommi t ment ,t o r edeem al lmat ur i ng gover nmentdebtatpar ,offer i ng money i n exchange.Si ncet hecent r albank hasunl i mi t ed abi l i t yt opr oduce money ,agov er nmentdef aul ton nomi naldebti snow r ul edout .I n t hi s cas e,t he FTPL i s si mpl y a ver si on ofa commodi t y money
st andar d;money ,aswel lasot hergovernmentl i abi l i t i es,i sbacked by t hepr esentval ueoff ut ur egover nmentsur pl uses,j ustast he val ueofMi cr osof tshar esi sbackedbyt hepr esentval ueofMi cr osof t pr ofit s( t hi si st he mai n exampl ei n Cochr ane 2005) .Whi l et he or i gi nal t r eat ment of t he FTPL was ambi guous ( i n par t i cul ar , Woodf or d( 1995)consi der st he case oft he FTPL undera money suppl yr ul e) ,i ti s now wi del y agr eed t hatt he FTPL r equi r es an i mpl i ci t or expl i ci t i nst i t ut i onal commi t ment t o pr ev ent a gover nment def aul t( or exc es sr epayment s by t he gover nment ) t hr ough an appr opr i at e( de) monet i zat i on ofdebt .I nt hi sf orm,t he FTPL bear s some si mi l ar i t i es wi t h t he ‘ unpl easant monet ar i st ari t hmet i c’ofSar gentand Wal l ace ( 1981) .Undert he monet ari st ari t hmet i c,a fiscaldefici ti mbal ancewi l lt ri ggeri nflat i on,because sei gni or ager ev enuesar eneces saryt opr ev entt hegover nmentf r om def aul t i ng.Eve nt hough monet i z at i on ofgove r nmentdebtpl aysa cent r al r ol ei n bot h t heor i es, t her e ar ei mpor t ant di ffer ences . Accor di ng t ot he unpl easant monet ar i st ar i t hmet i c, sei gni or age
r ev enues ( whi ch ar e part of t he pr es ent val ue of s ur pl use si n equat i on Pr esentval ueofpr i maryfiscalsurpl usesasoft i me)wi l l hav et or es pond t o change si n Ptt o ensur et hatt hegover nment budget const r ai nt hol ds; hence, equi l i br i um occur s t hr ough adj ust ment si nt he r i ght hand si de ofPr es entval ue ofpr i mary fiscalsur pl usesasoft i me.I nt heFTPL,sei gni or ager ev enueson t hemonet arybasepl ayatbestami norr ol e.Undert heFTPL,i ti s t hepr i cel evelt hatr espondst oshockst ospendi ngand t axes;i t s fluct uat i ons cause t he r ealval ue ofdebt( t he l ef t hand si de of Pr esentval ueofpri maryfiscalsurpl usesasoft i me)t oappr eci at eor depr eci at et or eachanequi l i bri um. TheFTPLi sbasedont heassumpt i ont hatequat i onPr esentval ueof pr i maryfiscalsur pl usesas oft i mehol dsonl y atan equi l i br i um. Thecr i t i csoft heFTPLvi ew i nst eadPr esentval ueofpr i mar yfiscal sur pl usesasoft i measaconst r ai ntt hatf or cest hegover nmentt o mat ch t her ealval ueofdebtwi t h an appr opr i at epr es entval ueof pri mary surpl uses,f or al lconcei vabl el evel s ofpri ces.To bet t er
under st and t he i ssue,i ti s usef ult o not et hatPr esentv al ue of pr i mary fiscalsur pl use s as oft i me l ooks i dent i calt ot he i nt er t empor albudgetconst r ai ntofanyhousehol di nt heeconomy:i ti s suffici entt or el abelBtast henomi nall i abi l i t i esoft hehousehol d, and t he r i ght hand si de as t he pr es ent val ue of i t s nonasset i ncome,ne tofconsumpt i on.I nt hecaseofa househol d,t her ei s uni ver salagr eementt hatPr esentval ueofpr i maryfiscalsur pl uses asoft i meshoul d bevi ewedasaconst r ai nt :gi venanyval ueofPt , t he house hol d must choose a consumpt i on/i ncome pl an t hat sat i sfiesPr esentval ueofpr i maryfiscalsur pl usesasoft i me.The cr i t i csoft heFTPLar guet hatt hegover nmentshoul dbenodi ffer ent f r om any ot heragent .Unl i ke t he pr evi ous cr i t i ci sm,t he heat ed debat et hat has emer ged on t hi s poi nt has not r esul t ed i n wi despr ead agr eement . As Basset t o ( 2005) poi nt ed out ,t he di sagr ee mentst emsf r om af undament alweaknes si nt het ool st hat havebeenusedt ost udyt hi spr obl em.Bot h cr i t i csandsuppor t er s oft heFTPLadoptt hedynami ccompet i t i vee qui l i br i um f r amewor k.
Thi sf r amewor ki s desi gned f orenvi r onment s popul at ed by many smal lpl ayers;i nt he pr esence ofa l ar ge and pot ent i al l y st r at egi c pl ayer , such as t he gov er nment ,i t offer s l i t t l e gui dance i n di st i ngui shi ngbet weenequi l i bri um condi t i ons,andconst r ai nt st hat t hel ar gepl ayer ( s)f acesunderanyci r cumst ances,even awayf r om an equi l i br i um.Whi l et her ear emany appl i cat i onsf orwhi ch t hi s ambi gui t yi snoti mport ant ,a pr operaccountoft hedi st i nct i on i s essent i alt ost udyt heuni quenessormul t i pl i ci t yofequi l i bri a,whi ch i st heobj ectofi nt er esti nt hecaseoft heFTPL.Toover comet hi s di fficul t y ,Basset t o( 2002)expl i ci t l y descr i bes t he economy as a game, wher et he act i ons av ai l abl et o al l househol ds and t he gover nmentatany poi nti nt i mear ecl ear l y spel l ed out .Basset t o shows t hatt he basi c ver si on oft he FTPL,wi t h an uncondi t i onal commi t mentt o a se quence ofpr i mary sur pl use s,i s nota val i d gov er nment st r at egy i n a wel l speci fied game, at l east i ft he sequencei ncl udesapri marydefici tatanypoi nti nt i me.I nt ui t i vel y , apri marydefici ti sonl ypossi bl ei ft hegovernmenti sabl et or ai se
r ev enuest hr oughborr owi ng.Si ncel endi ngi svol unt ary( asopposed t o paymentoft axes) ,any pl ausi bl e game i ncl udes t he possi bi l i t y t hatpri vat e agent s wi l lnotl end;i ft hi s ci r cumst ance ari ses,t he gove r nmenti sf or ced t o a fiscaladj ust ment .Basse t t ot hen pr ov es t hatt her eexi stot hergover nmentst r at egi est hatl ead t oa uni que equi l i br i um pri cel evelt hati sdet er mi nedf r om t axesandspendi ng al one. These st r at egi es pai nt a ve ry di ffer ent pi ct ur e of t he condi t i onsunderwhi chaFTPLar i ses:wher east het r adi t i onalvi ew r el i eson t hegove r nmentse t t i ng t axesand spendi ng exoge nousl y , wi t h nor egar df ort heevol ut i on ofdebt ,t hest r at egi esdescr i bedby Basset t or equi r et hegovernmentt ost r ongl yr eactt oi nci pi ent‘ debt cr i ses ’byaccumul at i ngl arg ersur pl usesi n pr esentv al ue.A smal l empi r i cal l i t er at ur e ( e. g. Canz oner i , Cumby , and Di ba 2001, Cochr ane2001)hasl ookedi nt ot heusef ul nessofPr ese ntval ueof pr i maryfiscalsur pl usesasoft i mei n account i ngf ort heevol ut i on ofpri ces.Ther esul t sar enotveryf avor abl e;i n part i cul ar ,when a gover nmentr unsan unexpect eddefici t ,t her ealmar ketpr i ceofi t s
debt i ncr eases , sugges t i ng t hat house hol ds expec tt hat t he gov er nment wi l l make up f or t he shor t f al lt hr ough i ncr eased sur pl usesi nt he f ut ur e.I ff ut ur e sur pl useswer e exoge nous and fixed,Pr ese ntval ueofpr i maryfiscalsur pl usesasoft i me woul d sugge stt hatan unexpect ed defici tshoul d havei t spr i maryeffec t t hr oughi nflat i on,bydepr essi ngt her ealmar ketval ueofdebt .Whi l e t heseobservat i onscannotr ef ut et hecent r alcl ai m oft heFTPL,t hat Pr es entval ue ofpr i mary fiscalsur pl uses as oft i me i s onl y an equi l i bri um condi t i on,t heycal li nt oquest i on t heusef ul nessoft he FTPL t o expl ai n act uali nflat i onaryepi sodes.Recentr esear ch i nt o monet arypol i cyhasl ookedf ori nt er estr at erul est hatensur epri ce l ev el det er mi nacy i ndependent l y of t he fisc al pol i cy of t he gov er nment ;t hi s has weakened i nt er es ti nt he FTPL.Though no i ssueascont r over si alas t heFTPL has emer ged si nce,t hi sr ecent anal ysi si sst i l lopent oambi guousdi st i nct i onsbet ween pol i cyrul es t hatshoul d capt ur egover nmentbehavi ori n al lpossi bl escenari os and equi l i br i um r el at i ons acr oss t he endogenous var i abl es ofan
ec onomi csy st em.Amor ecompl et eanal ys i sawai t st hedev el opment ofnew t ool st hatareassi mpl eandpower f ulasdynami ccompet i t i ve equi l i bri um,andyetabl et oappr opri at el ycapt ur et hespeci alr ol eof t hegov er nment .
2. 3.CONCEPTUALFRAMEWORK
TheFTPLandt hecashl esseconomy
Exposi t i ons of t he FTPL hav e occ asi onal l y bee n conduct ed i n model st hatuseWoodf or d’ s( 2003b,Ch.2)“ cashl essl i mi t ”economy , i . e. ,an ec onomy i n whi ch advance si n payment st ec hnol ogyhav e madepr i vat eagent s’demandf orr ealmoneybal ancesnegl i gi bl e,so t hatvi r t ual l y none oft he economy’ st r ansact i ons arecar r i ed out
usi ngmoney .Wear gueher et hatt hes et womodelf eat ur es—FTPL and t hecas hl es sec onomy—t oge t herr epr es enta combi nat i on t hat i sunl i kel yt ogenerat eusef ulorgenui nel yi nt erest i ngconcl usi ons. FTPL r esul t s and cas hl esseconomy set ups have bot h been advancedasdepar t ur esf r om ort hodoxanal ysi s,butt hef or merar e act ual l yl essst r i ki ng i nt hepr esenceoft he l at t er .TheFTPL has been i nvoked as nonst andar d pr eci sel y because i t pr oduces a di ffer ent expl anat i on f or i nflat i on f r om t he quant i t yt heor y of money .Thequant i t yt heorydescr i best hei nflat i onpr ocessi nt er ms oft he adj ust mentby pr i vat e agent st oi ncr ease si nt he nomi nal moneyst ock t hatar eexcessi vei nr el at i on t ot hei rdemand f orr eal bal ances.The r ol et hatcont r act i ons i nt he agent s’demand f or moneymaket osust ai ned i nflat i onsi nt hi sacc ounti sconfined t o cont r act i ons t hatar e an endoge nous r es ponse t o expansi ons of suppl y .TheFTPL,bycont r ast ,pr ovi desachannelwher ebyongoi ng cont r act i onsi nagent s’demandf ormoneyoccurendogenousl y ,ev en i nunchangedsuppl ycondi t i ons.I ti s,t her ef ore,har dl yagoodbasi s
f ordemonst r at i ng t he nov el t y oft he FTPL t o adopta model i ng envi r onment —t hecashl es sl i mi t —i n whi chagent s’demand f orr eal money bal ances has al r eady been el i mi nat ed exog enousl y . The confli ctbet ween pr omot i ngt heFTPL and usi ngcashl es sec onomy assumpt i ons can al so be i l l ust r at ed t hr ough an anal ogy wi t h Ri car di an equi val ence.As we not ed i nt he i nt r oduct i on,i mposi ng condi t i ons whi ch usual l y l ead t o sat i sf act i on of Ri car di an equi val ence i st he appr opr i at e st art i ng poi ntf or pr omot i ng t he FTPL.For t hen t he i mport ance offiscalpol i cy ( i n part i cul ar ,of gover nment debt ) can pot ent i al l y be demonst r at ed i n an envi r onmentt hatt ypi cal l ymi ni mi zest hei mport anceoffiscalpol i cy f ormacr oeconomi cdev el opment s.By t hesamet oken,t her el at i ve uni mpor t ance of monet ar y pol i cy i n t he FTPL i s i deal l y demonst r at edi nast andar dmodeli nwhi chor t hodoxr es ul t sont he i mport anceofmonet arypol i cyf orpri cel eveldet er mi nat i on woul d usual l ypr evai l .Touseacashl esseconomyset up,bycont r ast ,i st o st artwi t h a modelt hati snonst andar df r om t hepoi ntofvi ew of
monet ary anal ysi s, so vi ol at i ons of st andar d r esul t s ar el es s compel l i ng.I n part i cul ar ,r esul t st hathi ghl i ghtt hei mport anceof t hest ock ofgover nmentdebtf orpr i cel ev eldet er mi nat i on ar enot dr amat i ci n an envi r onmenti n whi ch t hefinanci alst ock t ypi cal l y r el ev antf orpr i cel ev eldynami cs— money—hasbeen r emov edf r om t he ec onomy ,orhas been depri ve d ofi t st r adi t i onalmedi umof exchangepr oper t i es. Fi scalpol i cyi nNi ger i a
The pastt wo decades i n Ni ger i a have wi t nessed a consi der abl e i ncr ease i n gov er nmenti ndebt ednes s.Bey ond t he i ss ue ofpoor qual i t y ofpubl i c expendi t ur es,t he abi l i t yt o save wi ndf al l sf r om exc ess cr ude oi lpr oceeds by t he gove r nmentr emai ns cr i t i cali n ensur i ng t hat go ver nment expendi t ur e i s mai nt ai ned at a sust ai nabl el evelandconsi st entwi t ht heabsorpt i vecapaci t yoft he ec onomy ( Baunsg ar d, 2003) .Evi dence r ev eal st hat t her e was a subst ant i ali ncr easei n gove r nments pendi ng,pr i mary defici tand debti nNi ger i abet ween1991-2005.Theoi lwi ndf al lbet ween1991
-1992 wasf ol l owedbyr api d gr owt hi n gov er nmentspendi ngwi t h an ave r ageofabout21per centofGDPdur i ngt hatper i od.Howev er , ast heoi lmar ketweakened i n subsequentyear s,oi lr ecei pt swer e notadequat et omee ti ncr easi ngl eve l sofdemandsandexpendi t ur es as bei ng r ei nf orced by pol i t i calpr essur es,wer e notrat i onal i zed. Al t hough t he democr at i cal l y el ect ed gover nmenti n 1999 adopt ed pol i c i e st or e s t or efis caldi s ci pl i ne ,t her a pi dmone t i z at i onoff or e i gn exchangeearni ngsbet ween2000-2004,anot herer aofoi lwi ndf al l , r esul t edi nl arg ei ncr easesi n gover nmentspendi ng.I n 2005al one, t he gover nments pendi ng al one i ncr eas ed t o 19 per ce ntofGDP f r om 14 per ce nti n 2000.Ext r a or di nary budge t ary out l ays ,not i ni t i al l yi ncl uded i nt hebudgeti ncr eased.Accor di ngt oBaunsgard ( 2003) , exper i ence i n Ni ge r i a i l l ust r at es t he di fficul t i es of i mpl ement i ng fiscalpol i cy i n an envi r onmentwi t h hi ghl y vol at i l e r ev enueflows.Ove rt heyear s,t her ehavebeenast r ongdefici tbi as and pr ocycl i cal l yi n fiscalpol i cy,dri ven l ar gel ybyoi lpri ces19911992 and 20002002,r evenue and expendi t ur e hav ei ncr eased
sharpl y . Thi s as t ypi cal l y se en f ol l owed t he sc al i ng back of expendi t ur es as oi lpr i ces subst ant i al l y decl i ne,t hough att i mes wi t h al ag.The i mpl i cat i ons ofsuch boombur st fiscalpol i ci es i nc l udet r a ns mi s si on ofoi l pr i c ev ol at i l i t yt ot hes t abl epr o v i s i on of governmentservi ces.Thi shasaddedt ot hef ai l ur eovernei t hert he year sofpubl i cspendi ng,f aci l i t at i ngt hedi ver si ficat i on norgr owt h oft heeconomy .
Fi scalPol i cyandEconomi cGr owt h
Fi scalpol i cyi sgener al l ybel i eved t obeassoci at ed wi t h growt h,or mor e pr eci sel y ,i ti s hel dt hat appr opr i at e fiscal measur es i n part i cul arci r cumst ancesc an beusedt ost i mul at eeconomi cgr owt h anddev el opment( Khosr aviandKari mi ,2010) .Ther ei san upsur ge ofempi ri call i t erat ur eai medatunr avel i ngt herel at i onshi pbet ween var i ousmeasur esoffiscalvar i abl esand economi cgr owt h.I nt hi s endeav our ,c r oss se ct i on,paneland t i me se r i es dat a hav e bee n
empl oy ed. At t empt s t o under pi n t he gr owt h r el at i onshi p ar e under mi ned by conce pt ual st at i st i cal and es t i mat i on concer ns ( Amanj aandMor r i se y ,2005;Mansour i ,2008;Bel l ,Br unor i ,Gr een, Wol man, Cor des and Qadi r i , 2005) . Ni j kamp and Poot ( 2002) conduct ed amet aanal ysi sofpastempi ri calst udi esoffiscalpol i cy andgr owt handf oundt hati nasampl eof41st udi es ,29% i ndi cat e a neg at i ve r el at i onshi p bet wee n fiscalpol i cy and gr owt h,17% a posi t i ve one,and 54% an i nconcl usi ve r el at i onshi p.One oft he cont ri but oryf act or st ot hesevari edempi ri calr esul t si st hemeasur e used t o pr oxy f orfiscalpol i cy .Tabl eoneshowsvari ousempi r i cal st udi es on t he r el at i onshi p bet ween fisc al pol i cy and economi c gr owt h.
2. 4.EMPI RI CALREVI EW
Recentr esear ch i nt o monet ary pol i cy has l ooked f ori nt er estr at e rul est hatensur epri cel eveldet ermi nacyi ndependent l yoft hefiscal
pol i cyoft hegove r nment ;t hi shasweakened i nt er es ti nt heFTPL. Though noi ssueascont r over si alast heFTPL hasemer ged si nce, t hi srecentanal ysi si sst i l lopen t oambi guousdi st i nct i onsbet ween pol i cyrul est hatshoul dcapt ur egovernmentbehavi ori nal lpossi bl e sce nar i os and equi l i bri um r el at i ons acr oss t he endogenous var i abl esofan economi csyst em.A mor ecompl et eanal ysi sawai t s t hedev el opmentofnew t ool st hatar eassi mpl eand power f ulas dynami c compet i t i ve equi l i br i um, and ye t abl et o appr opr i at el y capt ur et hespeci alr ol eoft hegovernment . Fi scalpol i cyi sundoubt edl yoneoft hemosti mport antt ol l susedby gov er nmentt o achi ev emacr oeconomi cst abi l i t y oft heeconomyof mostdev el opi ng count r i es ( Si yan and Adebayo,2005) .Ther ef or e, t heat t emptt o empi r i cal l yt es tt heefficacyofmonet aryand fisc al pol i cy i n an economy dat es back t ot he pi onee r i ng st udi es of Fr i edman and Mei sel man ( 1963)who empi r i cal l yi nve st i gat ed t he r es ponsi ve nes s of ge ner al pr i ce l ev el on ec onomi c act i vi t y r epr es ent ed byaggr eg at econsumpt i on t ochangei n moneysuppl y
and aut onomous gover nmentexpendi t ur e usi ng or di nar y si mpl e l i nearr egr essi onmodelt oest i mat et heUSdat af r om 18971957.I n t hei r concl usi on,t hey f ound out t hat a st abl e and pr edi ct abl e casualr el at i onshi p exi st ed bet wee n demand and money suppl y whi l enosuch si gni ficantr el at i onshi pwasobservedf orgover nment expendi t ur e( Bogunj oko,1997) .Hence,t her ewasast abl eaggr egat e andmoneysuppl yf ort heper i od.Accor di ngt oNwaobi( 1997) ,i nhi s art i cl euni tr ootofvari abl es{ Di ckeyFul l er( DF)t estand Augment Di cke yFul l er ( ADF) }t es t s confir m t hat t he modelassumed t he i rr el evanceofant i ci pat ed monet arypol i cyf orshort run devi at i ons of domes t i c out put f r om i t s nat ur al l ev el . Ther ef or e, onl yt he unant i ci pat ed component sofext er nalpr i cechangesi nt hel eve lof ext ernaleconomi cact i vi t yl eadst ot hedevi at i on ofdomest i cout put f r om nat ur al and observed t hat monet ar y t i ght eni ng once ant i ci pat ed i n an ec onomy woul d hav eno effec ton r ealdomes t i c out put i nt he short r un.Al so,Anyanwu ( 1996)i n hi s st udy of Ni ge r i a’ s ur ban unempl oyment anal yz ed t he monet ary and fiscal
pol i cyi mpl i cat i on Ni geri a’ sf ul lempl oymentl evel .However ,on t he ot her hand, al l t he fiscal var i abl es si gni ficant l y r educe d unempl oymenti n Ni ger i a.Thi sexceptonewashi ghl ysi gni ficanti n r educi ng t he l ev elof unempl oyment gener at i on i n Ni ger i at han monet ary pol i cy measur e.Al so,Aj i saf ef ol orunso ( 2001)i nt hei r st udy f ound out t hat monet ary pol i cy r at her t han fisc alpol i cy exer t s a gr eat i nfluence on ec onomi c act i vi t yi n Ni ge r i a. They t her ef or eobser ve dt hatt heemphasi sofgove r nmentfiscalact i ons on t he economy has l ed t o a gr eat erdi st or t i on oft he Ni ge r i an economy .Odedokun ( 1998)i n hi s st udy al so confir ms t hat t he gr owt hoffinanci alaggre gat esi nr ealt er mshaveposi t i vei mpacton economi cgr owt h ofdevel opmentcount r i es,i rr espect i veoft hel evel ofeconomi cdev el opmentat t ai ned.
TheCl assi caleconomi st sar guet hatfiscalpol i cycannot ,i nt hel ong t erm,affectt he l evelofr ealout put( GDP) .I n opposi t i on t ot hi s asser t i on,t he Keynesi an economi st s ar gue t hatfiscalpol i cy can affectt hel evelofout put .( Ander t on 2010) .Thei mport anceoffiscal pol i cy as an i nst r ument of economi c devel opment was fir st envi sage dbyKeynesi nhi sGener alTheor ywher ei nheshowedt hat t he t ot alnat i onali ncome was an i ndex ofeconomi c act i vi t y and br ought out t he r el at i on ofeconomi c act i vi t y oft ot alspendi ng ( Emanuel e 2003) .Hence fisc alpol i cycoul d be use dt oi nfluence ec onomi cdev el opmentpr oxi ed by percapi t ai ncomeast hi sst udy woul d confir m. Pr evi ous r esear cher s conduct ed sever al st udi es r eg ar di ng t he i mpact offisc alpol i cy on ec onomi c dev el opment t hr ough out put .Howev er ,mi xed r es ul t swer eobse rved duet ot he model s, count r i es, r esear ch met hods and dat a empl oy ed. The pri nci pl e concl usi on ofa wor ki ng paper by Thomas ( 2012)on effect i venessoffiscalpol i cyi sshortruneffect i venessoffiscalpol i cy t ur ns on t he t heor et i calmodeloft he macr o economy t hat i s
adopt ed.Thati sbec ausefisc alpol i cywor kst hr ough AD,and t he i mpactofAD on t he r ealeconomy depends on macr oe conomi c per spect i ve.Thei mpl i cat i on i st hefiscalpol i cydebat ei sul t i mat el y a debat e overmacr oeconomi ct heor y .No t heor et i calpar adi gm i s compl et el y sat i sf yi ng. Compari son of par adi gms spot l i ght st he cr i t i cal assumpt i ons eac h makes; pr ovi des a bet t er basi s of under st andi ng;andcan hel pgui deandi mpr ovepol i cy .Empi r i cal l y , r es ear ches conduct ed i nt he dev el oped nat i ons i ncl ude t hose of Al exi ou ( 2009)whi chpr ovi desevi denceont her el at i onshi pbet ween ec onomi cdev el opmentandgov er nmentspendi ng,usi ngpaneldat a met hodol ogi es f or se ve nt r ansi t i on ec onomi es i n Sout h East er n Eur opef r om 1995 t o2005.Thest udyr ev eal ed si gni ficantr esul t s. Mor especi fical l y ,t heevi dencegener at ed i ndi cat est hatf ouroutof t hefivevari abl esused,i ncl udi ngfiscalpol i cy( governmentspendi ng on capi t al f ormat i on)i n part i cul ar had posi t i ve and si gni ficant i mpact on economi c gr owt h. Yasi n ( 2003) , expl oi t i ng t he i nconcl usi veevi denceofsomeear l i erst udi es,r eexami nedt heeffect
ofgover nmentspendi ng on economi c gr owt h/devel opmentusi ng paneldat a set f r om SubSahar an Af r i ca. The est i mat ed model der i vedf r om an aggr eg at epr oduct i onf unct i onandhadgov er nment spendi ng,f or ei gn assi st ance f ordev el opmentand t r adeopenness expl i ci t l y speci fied as i nput f act or s. Fi xed and r andomeffect s t ec hni queswer eusedt oes t i mat et hemodel .Ther esul t sf r om bot h es t i mat i on t ec hni ques i ndi cat et hatgov er nmentspendi ng,t r adeopennes s and pr i vat ei nve st mentspendi ng al lhav e posi t i ve and si gni ficanteffec tonec onomi cgr owt handdev el opment .Amanj aand Morr i ssey( 2005)usedaut or egr essi vedi st r i but edl ag( ARDL)model and or di naryl eastsquar emet hodson t i meser i esdat at oanal yse t her el at i onshi pbet weenfiscalpol i cyandgr owt hi n Kenyabet ween 1964 2002.The st udy r ev ealt hat pr oduct i ve expendi t ur e has st r ong adver se effecton gr owt h whi l et her e was no evi dence of di st ort i onaryeffect son gr owt h ofdi st ort i onaryt axes.Gover nment i nves t mentwas f ound t o be benefici alt o gr owt hi nt hel ong r un. Adef eso e t al ( 2010) exami ned t he i mpact of fiscal pol i cy on
ec onomi c gr owt hi n Ni ge r i af r om 1970 t o 2005,usi ng t he er r or corr ect i on t echni quet ot estt hepr edi ct i veabi l i t yoft heendogenous gr owt hmodel .Thefindi ngsoft hest udywer econsi st entwi t hear l i er empi r i cal findi ngs i n ot her count r i es , whi ch r eveal ed t hat pr oduct i vegov er nmentexpendi t ur ehasposi t i veeffecton economi c gr owt h. I n a st udy t o exami ne t he gr owt h effect s of publ i c expendi t ur ef orapanelof30 deve l opi ngcount r i esovert he1970s and 1980s,Bose e tal( 2007)finds t hatt he shar e ofgover nment capi t alexpendi t ur ei nGDPi sposi t i vel yandsi gni ficant l ycorr el at ed wi t h economi cgr owt h,whi l ecur r entexpendi t ur ei sobservedt obe i nsi gni ficant .Att hedi saggr egat ed l evel ,governmenti nvest menti n educat i on andt ot alexpendi t ur esi n educat i on ar et heonl yout l ays t hatwer eobserv edt obesi gni ficant l yassoci at edwi t h gr owt hi ft he budget const r ai nt and omi t t ed var i abl es ar e t aken i nt o consi der at i on.Empl oyi ng t he or di nary l east squar es es t i mat i on t ec hni que, Mur i t al a and Tai wo ( 2011) ,i nve st i gat et he effec t of r ecur r ent and capi t alexpendi t ur e on GDP and finds t hat bot h
component s of gov er nment expendi t ur e have si gni ficant posi t i ve effect sont heGDP.Usi ngdi ffer entr egr essi onmodel sf ort i meser i es dat a cov er i ng t he per i od 19902006 on Jor dan,Dandan ( 2011) finds t hat gover nment expendi t ur e at t he aggr eg at el evel has posi t i vei mpactont hegr owt hofGDP.Byr egr ess i ngGDPoncapi t al and r ecurr entexpendi t ur e( af t erdeflat i ngdat a on al lvari abl esby t he consumer pr i ce i ndex, CPI ) , Shar ma ( 2012) finds an i nsi gni ficantnegat i ver el at i onshi p bet ween t hecapi t alexpendi t ur e and r ec ur r ent expendi t ur e,and t he r ealGDP f or t he Nepal es e ec onomy ,at t r i but edt omi smanagementandembez z l ementofpubl i c f undsbygover nmentoffici al sandpol i t i calappoi nt ees.Modebee tal ( 2012) ,i nvest i gat et hei mpactofr ecurr entand capi t alexpendi t ur e on Ni ger i a’ seconomi cgr owt h usi ngmul t i pl er egr essi on anal ysi sf or dat acover i ngt heper i od 1987t o2010and find t hatt hei mpactof bot h component s of expendi t ur e was st at i st i cal l yi nsi gni ficant , t hought hei mpactofr ecur r entexpendi t ur ewasposi t i veandt hatof capi t alexpendi t ur e,negat i ve.However ,t hefindi ngscannotberel i ed
upon as t hedi agnost i cst at i st i cspr ovet heest i mat ed modelt o be i nval i d.I n anot herst udy t o exami ne t he r el at i ve effect i veness of monet ary and fiscalpol i ci es i n Ni ger i a,Ai gheyi si( 2011) ,empl oys t he met hod ofcoi nt egr at i on and er r orcor r ect i on usi ng quart er l y dat a spanni ngt heper i od 1981Q3 t o2009Q4 and findst hatt ot al governmentexpendi t ur e( act i ngaspr oxyf orfiscalpol i cy)posi t i vel y affect ed r ealgr oss domes t i c pr oduct ( RGDP) i nt he shor tr un. Bur r ows ( 1974)made us t o know,whi l e expl ai ni ng Keynes f ul l i ncomedet er mi nat i on model ,t hatt her ei sa negat i ver el at i onshi p bet ween t ax and economi c devel opment si nce t ax wi l lr educe di sposabl ei ncome and henceconsumpt i on.Summar i l y ,f r om t he abov e,i twas di sc over ed t hat i ncr ease i n gov er nmentr ecur r ent spendi ngswi l lposi t i vel yaffectout putandhencepercapi t ai ncome and dev el opment whi ch i si nl i ne wi t h economi ct heor y .When gove r nmenti nve st mentr i se s( spendi ngson const r uct i on ofr oads, dam,bri dges,bui l di ngofschool s,hospi t al set c. ) ,i tengageswor kers and t her eby r educes unempl oyment r at e and gover nment
expendi t ur eonunempl oymentbenefit s,i ncr easesaggr egat ei ncome, economi cact i vi t i esand wel f ar eand t huseconomi cdev el opmenti s r e al i z ed.
CHAPTER THREE RESEARCH METHODOLOGY
3. 0I NTRODUCTI ON
Thi schapt erst at est hevar i ousmet hodsusedi nr esear ch,aswel l ast hepopul at i on oft hest udy ,andsampl i ngt echni quesusedi n det er mi ni ng t he sampl e si z ef or t he r es ear ch.How dat a was col l ect edandanal ysedi sal sodi scussedi nt hi schapt er . The mai n obj ect i ves of t hi sr esear ch wer e achi eved t hr ough quant i t at i ve met hods, as i nf er ent i al st at i st i cs wer e used t o measur et hel ev elofaccur acy and val i dat er es ponsesf r om t he r espondent si naccor dancet ot heobj ect i vesoft her esear ch.
3. 1STUDYAREA
Abuj a,t hecapi t alofNi ger i awast hest udyar eaf ort hi sr esear ch. I ti sl ocat ed i nt hecent r eofNi geri a,wi t hi nt he Feder alCapi t al Ter r i t or y ( FCT) .Abuj ai sapl annedci t y,andwasbui l tmai nl yi n t he1980s.I toffici al l ybecameNi ger i a' scapi t alon 12 Dece mber 1991,r epl aci ngLagos,t hough t hel at t err emai nst hecount ry' s
mostpopul ousci t y .Att he2006census,t heci t yofAbuj ahad a popul at i on of776, 298,maki ngi toneoft het en mostpopul ous ci t i esi nNi geri a.Abuj ahaswi t nessedahugei nfluxofpeopl ei nt o t heci t y;t hegr owt h hasl ed t ot heeme mer genceofsat el l i t et owns such asK sKar u Ur ban Ar ea,Sul ej a,Gwagwal ada,Lugbe,Kuj eand sma mal l erse t t l eme ment st owhi ch t hepl anned ci t yi sspr awl i ng.The unoffic ffici almet r opol i t an ar ea ofAbuj a has a popul at i on ofwel l overt hr eemi mi l l i onandcomp mpri sest hef ourt hl ar gestur banar eai n Ni ger i a,sur passedonl ybyLagos,Kano andI dIbadan. 3. 2 RESEARC RCH DESI GN
The r esear ch desi gn used f or t hi s st udy was t he descr i pt i ve r esear ch desi gn.Si ncedat achar act eri st i cswer edescri bedusi ng f r equenci esand per ce nt ages ,and no mani pul at i ons ofdat a or var i abl es wer e necessary ,t he r esear cher chose t hi sr esear ch desi gn.Theresear cherdi scarded ot heral t er nat i vessuch ast he causal and expl anat or yr es ear ch desi gns, because accur at e findi ngsanddat aanal ys i sma maynotbeachi ev ed.
3. 3POPULATI ON OFTHE HESTUDY
Thepopul at i on f ort hi sst udyar eempl oyeesoft heCent r alBank ofNi ge r i a,Abuj a.The popul at i on figur ef ort he st udy was 32 r espondent s, comp mpr i si ng of CBN offic ffici al s f r om
var i ous
depar t ment s such as oper at i ons,finance , admi ni st r at i on et c. Ther eason f orchoosi ngTheAbuj a officei st hati thasa f ai r l y l ar genumberofCBN Offici al st hatcanf ai r l yr eflectt het r uest at e ofTSAi nNi ger i aeconomy my .
3. 4 POPULATI ON SI ZE AND TECHNI QUE
Si ncet hepopul at i on f ort hest udywa wasnotl arg e,anddat acoul d becol l ect edf r om al lt her espondent s,t her esear cheradopt edt he ce nsus samp mpl i ng t ec hni que t o succe ssf ul l y comp mpl et et he st udy . Al l32r espondent swer eusedf ort hi sst udy .
3. 5 DATA CO OL LLECTI ON ME METHO HOD
Dat af ort hi sst udywascol l ect edf r om t her espondent st hr ough t heuseofquest i onnai r es.Quest i onnai r eswer eshare dt oal l32 r es pondent s of t he or gani z at i on, and fiel d sur veys t hr ough r esponsest oquest i onsi nt hequest i onnai r eserv ed ast hema mai n sour ceofpri marydat af ort hi sst udy . Ot heri nf orma mat i on wer ecol l ect ed f r om t extbooks,j our nal sand ot hersecondarysour cesofdat a. 3. 6DATA ANALYSI S
Var i ous anal yt i calt ool s and sof t war e such as pi e char t s,bar chart s,t abl es,and St at i st i calPackagef orSoci alSci ence( SPSS) sof t war ewer eusedi nanal ysi ngdat af ort hi sst udy . Dat acol l ect edwer eanal ysedusi ngf r equenci esandper cent ages. These f r equenci es and per cent ages enabl ed t he r esear cher t o cl ear l yr epr esentt r ue dat a charact er i st i cs and findi ngs wi t ha gr eatdealofaccur acy .I nt er pr et at i on and anal ysi sofdat a was
al so used t o desc r i be i t ems i nt abl esand chart s used f ort hi s st udy .
3. 7LI MI TATI ON
Si nce t hi s st udy i s a descr i pt i ve r esearc h,val i dat i on ofdat a charact er i st i cs and vari abl es descr i bed maybe l i mi t ed t o some ext ent as ot her st at i st i cal t ool s such as ari t hmet i c mean, var i ance,st andar ddevi at i on,andt hecent r all i mi tt heor em wer e notappl i ed t of ur t herpr ove t he accur acy offindi ngs i nt hi s st udy.Ther esear cheronl yused descri pt i vest at i st i calt ool ssuch as f r equenci esand per cent ages t o descr i bedat a char act eri st i cs andfindi ngs .
CHAPTER FOUR DATA PRESENTATI ON,ANALYSI S AND I NTERPRETATI ON
Thi s chapt er i s devot ed t o t he pr esent at i on, anal ysi s and i nt erpr et at i on oft hedat agat her ed i nt hecour seoft hi sst udy .The dat a ar e based on t he number ofcopi es of t he quest i onnai r e compl et edandr et ur nedbyt her espondent s.Thedat aar epr ese nt ed i nt abl es and t he anal ysi si s done usi ng t he Pear son cor r el at i on t e s t .
BI O 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
Sour ce:fiel dsurv ey ,February,2016.
Tabl e1 aboveshowst hegenderdi st r i but i on oft her espondent sused f ort hi s st udy. 16res pondent swhi chr epr esent50. 0per centoft hepopul at i onaremal e. 16r espondent swhi chr epr esent50. 0per centoft hepopul at i onaref emal e.
Table 2 age grade of respondents Cumulative Frequency Valid
Percent
Valid Percent
Percent
below 20 year
3
!."
!."
!."
21#30 year
6
1$.$
1$.$
2$.1
31#"0 year
$
25.0
25.0
53.1
"1#50 year
10
31.2
31.2
$"."
51#60year
5
15.6
15.6
100.0
32
100.0
100.0
Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e2aboveshowst heagegr adeoft her espondent susedf ort hi sst udy .
3r espondent swhi ch r epr esent9. 4per centoft hepopul at i on i sbel ow 20yr s. 6 r espondent s whi ch r epr esent18. 8per ce ntoft he popul at i on ar e be t wee n 2130yr s. 8r es pondent s whi ch r epr es ent 25. 0 per ce nt of t he popul at i on ar e bet ween 3140yr s. 10 r espondent s whi ch r epr esent 31. 2 per cent of t he popul at i on ar e bet wee n 4150yr s whi l et he r emai ni ng 5 r es pondent s whi ch r epr esent15. 6per centoft hepopul at i onarebet ween5060yr s.
Table 3 educational qualification of respondents Cumulative Frequency Valid
Percent
Valid Percent
Percent
%&''C()''C(
"
12.5
12.5
12.5
*+,)-+,)'C
10
31.2
31.2
"3.$
P/,)'C)P-,
10
31.2
31.2
5.0
$
25.0
25.0
100.0
32
100.0
100.0
*T-(' Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e3 aboveshowst heeducat i onalbackgr ound oft her espondent sused f or t hi sst udy. Outoft het ot alnumberof32r espondent s,4r espondent swhi chr epre sent12. 5 per centoft hepopul at i on ar eFSLC hol der s.10 r espondent swhi ch r epr esent 31. 2per ce nt oft he popul at i on ar e SSCE/WASSCE hol der s. 10 r espondent s whi ch r epr esent31. 2per centoft he popul at i on ar e OND/HND/BSC hol der s
whi l et he r emai ni ng 8 r espondent s whi ch r epr esent 21. 0 per cent of t he popul at i onar eMSC/PGD/PHD hol der s
Table 4 Marital status of respondents Cumulative Frequency Valid
Percent
Valid Percent
Percent
inle
10
31.2
31.2
31.2
married
20
62.5
62.5
!3.$
divorced
1
3.1
3.1
!6.!
widowed
1
3.1
3.1
100.0
32
100.0
100.0
Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e4aboveshowst hemar i t alst at usoft her espondent susedf ort hi ss t udy .
‘ Outoft het ot alnumberof32 r espondent s,10 r espondent swhi ch r epr es ent 31. 2per centoft hepopul at i on aresi ngl e. 20r espondent swhi chr epr esent62. 5 per cent of t he popul at i on ar e marr i ed. 1r espondent whi ch r epr esent 3. 1 per centoft hepopul at i on i sdi vor cedwhi l et her emai ni ng1 r espondentwhi ch r epr esent3. 1per centoft hepopul at i oni swi dowed.
Table 5 position of respondents Cumulative Frequency Valid
Percent
Valid Percent
Percent
4unior taff
20
62.5
62.5
62.5
enior taff
12
3.5
3.5
100.0
Total
32
100.0
100.0
Sour ce:fiel dsurv ey ,February,2016.
Tabl e5aboveshowst hel ev elorposi t i onofr espondent susedf ort hi ss t udy . Outoft he32r espondent s,20whi chr epre sent62. 5per centoft hepopul at i on ar ej uni ors t aff whi l et her emai ni ng12empl oyee swhi chr epre sent37. 5per cent oft hepopul at i onareseni orst aff.
Table 6 years of service of respondents Cumulative Frequency Valid
Percent
Valid Percent
Percent
0#2 year
$
25.0
25.0
25.0
3#5 year
11
3"."
3"."
5!."
6#11 year
10
31.2
31.2
!0.6
3
!."
!."
100.0
32
100.0
100.0
above 12 year Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e5 aboveshowst heyear sofexper i enceoft her espondent sused f ort hi s st udy. Outoft he32 r espondent s,8 whi ch r epre sent25. 0per centoft hepopul at i on havehad 02yr s exper i enceatwor k. 11 whi ch r epr es ent34. 4 per centoft he popul at i on havehad 35yr sexperi ence. 10 whi ch r epre sent31. 2per centoft he popul at i on have had 611yr s exper i ence whi l et he r emai ni ng 3 empl oyee s whi ch r epr esent9. 4 per centoft he popul at i on have had mor et han 12yr s experi ence.
TABLESBASED ON RESEARCH QUESTI ONS
Table 7 fiscal policy is good for the econoy of nigeria Cumulative Frequency Valid
Percent
Valid Percent
Percent
tronly aree
10
31.2
31.2
31.2
aree
15
"6.!
"6.!
$.1
undecided
5
15.6
15.6
!3.$
diaree
2
6.2
6.2
100.0
32
100.0
100.0
Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e7aboveshowst her esponsesofr espondent st hatfiscalpol i cyi sgoodf or t heeconomyofNi ger i a 10r espondent swhi chr epr esent31. 2per centoft hepopul at i onst r ongl yagr eed t hatfiscalpol i cy i s good f ort he economy ofNi ger i a. 15 r espondent s whi ch r epr esent38. 8per centoft hepopul at i on agreedt hatfiscalpol i cyi sgoodf ort he ec onomy of Ni ge r i a. 5 r es pondent s whi ch r epr es ent 15. 6 per cent of t he popul at i onwer eundeci dedwhi l et her emai ni ng2re spondent swhi chr epre sent 6. 2 per centoft he popul at i on di sagr eed t hatfiscalpol i cy i s good f or t he economyofNi ger i a.
Table ! "pplication of adequate fiscal policies #ould inii$e extravagancy by %overnent& Cumulative Frequency Valid
tronly aree
Percent
Valid Percent
Percent
10
31.2
31.2
31.2
aree
$
25.0
25.0
56.2
undecided
1
3.1
3.1
5!."
10
31.2
31.2
!0.6
3
!."
!."
100.0
32
100.0
100.0
diaree tronly diaree Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e 8 above shows t he r esponses ofr espondent st hatappl i cat i on offiscal pol i cywoul dhel pmi ni mi zeext r avagancybyt hegove r nment . 10r espondent swhi chr epr esent31. 2per centoft hepopul at i onst r ongl yagr eed t hat appl i cat i on offisc alpol i cy woul d hel p mi ni mi z e ext r avagancy by t he gov er nment . 8r espondent s whi ch r epr esent 25. 0per cent of t he popul at i on agr eedt hatappl i cat i onoffiscalpol i cywoul dhel pmi ni mi zeext r avagancybyt he gov er nment . 1r espondentwhi ch r epr esent3. 1 per centoft he popul at i on i s undeci ded. 10 r espondent s whi ch r epr esent 31. 2 per cent of t he popul at i on di sagr eedt hatappl i cat i on offiscalpol i cywoul dhel pmi ni mi zeext r avagancyby t hegov er nmentwhi l et her emai ni ng3r espondent swhi chr epre sent9. 4per cent oft hepopul at i on st r ongl ydi sagreedt hatappl i cat i on offiscalpol i cywoul dhel p mi ni mi z eext r avagancybyt hegove r nment .
Table ' fiscal policy #ill help inii$e corruption( enthrone transparency and accountability in )igeria Cumulative Frequency Valid
Percent
Valid Percent
Percent
tronly aree
1$
56.2
56.2
56.2
aree
10
31.2
31.2
$.5
undecided
2
6.2
6.2
!3.$
tronly diaree
2
6.2
6.2
100.0
32
100.0
100.0
Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e 9 above shows t he r esponses ofr espondent s fiscalpol i cy wi l lhel p mi ni mi zecor rupt i on,ent hr onet r ansparencyandaccount abi l i t yi nNi geri a. 18r espondent swhi chr epr esent56. 2per centoft hepopul at i onst r ongl yagr eed t hatfiscalpol i cy wi l lhel p mi ni mi zecorr upt i on,ent hr one t r ansparency and account abi l i t yi nNi geri a. 10 r espondent s whi ch r epr esent31. 2per centoft he popul at i on agr eed t hat fisc al pol i cy wi l l hel p mi ni mi z e cor r upt i on, ent hr one t r ansparency and account abi l i t yi n Ni ger i a. 2r espondent s whi ch r epr esent6. 2 per centoft he popul at i onwer eundeci dedwhi l et her emai ni ng2re spondent swhi chr epre sent 6. 2 per centoft he popul at i on st r ongl y di sagr eed t hatfiscalpol i cy wi l lhel p mi ni mi zecor rupt i on,ent hr onet r ansparencyandaccount abi l i t yi nNi geri a.
Table 1* ipleentation offiscal policy influences the stabili$ation of the econoy Cumulative Frequency Valid
Percent
Valid Percent
Percent
tronly aree
15
"6.!
"6.!
"6.!
aree
10
31.2
31.2
$.1
undecided
3
!."
!."
$.5
diaree
2
6.2
6.2
!3.$
tronly diaree
2
6.2
6.2
100.0
32
100.0
100.0
Total
Sour ce:fiel dsurv ey ,February,2016.
Tabl e 10 above shows t he r esponses ofr espondent st hati mpl ement at i on of fiscalpol i cyi nfluencest hest abi l i zat i on oft heeconomy. 15r espondent swhi chr epr esent46. 9per centoft hepopul at i onst r ongl yagr eed t hat i mpl ement at i on of fisc al pol i cy i nfluences t he st abi l i z at i on of t he economy . 10r espondent swhi chr epre sent31. 2per centoft hepopul at i on agre ed t hat i mpl ement at i on of fisc al pol i cy i nfluences t he st abi l i z at i on of t he economy . 3r espondent s whi ch r epr esent9. 4 per centoft he popul at i on wer e undeci ded. 2 r es pondent s whi ch r epr es ent 6. 2 per ce nt of t he popul at i on di sagreedt hati mpl ement at i on offiscalpol i cyi nfluencest hest abi l i zat i on oft he economywhi l et her emai ni ng2r espondent swhi chr epre sent6. 2per centoft he popul at i on st r ongl y di sagree dt hati mpl ement at i on offiscalpol i cy i nfluences t hest abi l i zat i onoft heeconomy.
RESEARCH HYPOTHESI S
Ho:I mpl ement at i onoffiscalpol i cydoesnotst abi l i zet heeconomy. Hi :I mpl ement at i onoffiscalpol i cyst abi l i zesoft heeconomy Levelofsi gni ficance:0. 05
Deci si on r ul e: r ej ect t he nul l hypot hesi si ft he pval ue or “ r ”
cal cul at edi sl esst hant hel evelofsi gni ficanceor“ r”t abul at ed.
Correl ati ons
Appl i cat i onof I mpl ement at i onof
fis c alpo l i c y
fis c alpo l i c y
prev ent s
s t a bi l i z e st he
ext r avagancyby
economy
go ver nment
I mpl ement ati onoffiscalpol i cy Pear sonCor r el at i on st abi l i zest heeconomy
Si g.( 2t ai l e d) N
Appl i cat i onoffiscalpol i cy pr eventse xt r avagancyby
1
PearsonCorr el ati on Si g.( 2t ai l e d)
. 867** . 000
32
32
. 867**
1
. 000
gover nment N
32
32
** .Corr el ati oni ssi gni ficantatt he0. 05l evel( 2tai l ed) .
Concl usi onbasedont hedeci si onr ul e:
Si ncet hepval ueor“ r ”cal cul at ed ( 0. 000)i sl esst han t hel evelof si gni ficance or“ r ”t abul at ed ( 0. 05) ,we r ej ectt he nul lhypot hesi s and acceptt he al t er nat i ve t her eby concl udi ng t hatt he effect i ve I mpl ement at i onoffiscalpol i cyst abi l i zesoft heeconomy NOTE:t herei sast r ongposi t i ver el at i onshi pof0. 867bet weent hose
r es pondent st hat bel i ev et hat I mpl ement at i on of fiscal pol i cy st abi l i zesoft heeconomyandt hosewhof eelt hatt heappl i cat i on of fiscalpol i cypr eve nt sext r avagancybygover nment .
CHAPTER FI VE FI NDI NGS,CONCLUSI ON AND RECOMMENDATI ON
Theobj ect i vesoft hest udywer et o
1.Toexami net hei mpactoffiscalpol i ci esi n st abi l i zat i on oft he Ni ger i aeconomy . 2.Toexami net hef act or si nfluenci ngt hepr operi mpl ement at i on ofv ar i ousfis calpol i c i e si nNi g er i a. 3.Toi dent i f yt heconsequencesoft hei mpl ement edfiscalpol i ci es byt hegover nmentofNi ger i a. Fi ndi ngsf r om t hest udyr eveal edt hef ol l owi ng 1.Fi scalpol i cyi sgoodf ort heeconomyofNi geri a 2.Appl i cat i on of adequat e fiscal pol i ci es woul d mi ni mi z e ext r avagancybygover nment 3.Fi scal pol i cy wi l l hel p mi ni mi z e cor r upt i on ent hr one t r anspar encyandaccount abi l i t yi nNi geri a. 4.I mpl ement at i on offiscalpol i cy i nfluencest hest abi l i zat i on of Ni ge r i anec onomy
QUESTI ONNAI READMI NI STRATI ON
ease endeavort o compl et et he quest i onnai r e by t i cki ng t he I NSTRUCTI ON:Pl corr ectanswer( s)f r om t heopt i onsorsuppl yt hei nf ormat i on r equi r ed wher e necessary.
Pers onalI nf ormat i on/Dat a SECTI ON A: 1.Gender a.Mal e b.Femal e 2.Agegr ade a.Bel ow 20yr s b.2130yr s c. 3140yr s d.4150yr s e. 5160yr s f . Abov e60yr s 3.Educat i onalqual i ficat i on a.WASCE/SSCE b.OND/HND/BSC c. MSC/PGD/PHD d.Ot her s 4.Mar i t alst at us a.Si ngl e b.Mar r i ed c.Di v or ce d d.Wi dowed 5.Exper i ence/year sofser vi ce a.02yr s b.35yr s c. 611yr s d.Abov e12yr s 6.Level /posi t i on a.Juni orst aff b.Seni orst aff
SECTI ON B:
Quest i onson t hei mpactoffiscalpol i ci esi nt hest abi l i zat i on oft heNi geri an economy 7.Fi scalpol i cyi sgoodf ort heeconomyofNi geri a. a.St r ongl yagr ee d
b.Agr eed c. Undec i ded d.Di sagr eed e.St r ongl ydi sagr eed 8.Adequat e appl i cat i on fiscal pol i ci es woul d hel p mi ni mi z e ext r avagancy by gov er nment . a.St r ongl yagr ee d b.Agr eed c. Undec i ded d.Di sagr eed e.St r ongl ydi sagr eed 9.Fi sc al pol i cy wi l l hel p mi ni mi z e cor r upt i on, ent hr one t r anspar ency and account abi l i t yi nt hegovernment . a.St r ongl yagr ee d b.Agr eed c. Undec i ded d.Di sagr eed e.St r ongl ydi sagr eed 10. I mpl ement at i onoffiscalpol i cyi nfluencest hest abi l i zat i onofNi geri aneconomy . a.St r ongl yagr ee d b.Agr eed c. Undec i ded d.Di sagr eed e.St r ongl ydi sagr eed 11. Bri eflyout l i neotherbenefit soffiscalpol i cyi nNi geri a. ______ ______________________________________ _ __ __ __________________________________________ ________
REFERENCE Bassetto, M. (2002). A game-theoretic view of the scal theory of the price level. Econometrica 0(!), 2"!#2"$%. Bassetto, M. (200%). E&'iliri'm an government commitment. *o'rnal of Economic +heory "2("), $#"0%. B'iter, . . (2002). +he scal theory of the price level/ A criti&'e. Economic *o'rnal ""2("), %$#0. 1anoneri, M. B., 3. E. 1'my, an B. +. 4ia (200"). 5s the price level etermine y the nees of scal solvency6 American Economic 3eview $"(%), "22"#"27. 1ochrane, *. . (200"). 8ong term et an optimal policy in the scal theory of the price level. Econometrica !$("), !$#""!. 1ochrane, *. . (200%). Money as stoc9. *o'rnal of Monetary Economics %2(7), %0"#%2. :ocherla9ota, ;. 3. an 1.
eeral 3eserve Ban9 of Minneapolis ?'arterly 3eview 27(), "#27. 8eeper, E. ("$$"). E&'iliria 'ner @active an @passive monetary policies. *o'rnal of Monetary Economics 2("), "2$# ". argent, +. *. an ;. allace ("$%). @3ational e=pectations, the optimal monetary instr'ment, an the optimal money s'pply r'le. *o'rnal of eeral 3eserve Ban9 of Minneapolis ?'arterly 3eview %(7), "#". ims, 1. A. ("$$). A simple moel for st'y of the etermination of the price level an the interaction of monetary an scal policy. Economic +heory (7), 7"# 7$$. oofor, M. ("$$). Monetary policy an price level eterminacy in a cash-inavance economy. Economic +heory (7), 7%#70. oofor, M. ("$$%).
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1onference eries on <'lic inance, investment an economic growth in ;igeria/ An error correction moel, >inance an 1ontrol 1ompeni'm (%th Eition), (20"0a). C2D ;.<. A'' an *.B. gewo, >oreign irect investment, economic growth an e=port performance in
