ABSTRACT
The study provided an empirical analysis of the effect of fiscal policy on investment expenditures in Nigeria using time series data from 1999 to 2016 collected from the Central Bank of Nigeria statistical bulletin and the National Bureau of Statistics. Fiscal policy was measured by government total tax revenue and government total expenditures. The ordinary least squares (OLS) method of multiple regression was utilized in analyzing the log-linearized model. The findings were that, government total revenue and government total expenditure jointly explained about 94% of the total variations in investment expenditures as shown by the adjusted R-squared. The F-statistic showed that the joint effect of tax revenue and government expenditure was significant in affecting investment expenditures in Nigeria. Specifically, tax revenue and government expenditures had positive and significant effect on investment expenditures over the period of study. Consequently, it was recommended that government funds should be channeled towards provision of critical infrastructure so as to provide the enabling investment environment.
TABLE
OF CONTENTS
Cover page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vii
Abstract ix
CHAPTER ONE:
INTRODUCTION
1.1 Background to the Study 1
1.2 Statement of the Problem 4
1.3 Objectives of the Study 5
1.4 Research Questions 5
1.5 Research
Hypotheses 5
1.6 Significance
of the Study 6
1.7 Scope
of the Study 6
1.8 Limitations of the
Study 7
CHAPTER
TWO: REVIEW OF RELATED LITERATURE
2.1 Conceptual Framework 9
2.1.1 Concept of Fiscal Policy 9
2.1.2 Concept of Government Expenditure 11
2.1.3 Types of Government Expenditure 14
2.1.4 Measurement of
Government Expenditure 15
2.1.5 Role of Government Expenditure 16
2.1.6 Tax Revenue 17
2.1.7 Tax Administration in Nigeria 20
2.1.8 Tax Avoidance and Tax Evasion Practices 22
2.1.9 Concept of Investment 23
2.1.10 Fiscal Policy and Investment 25
2.2.1 Classical Theory of Investment 28
2.3 Empirical Literature 32
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1 Research Design 37
3.2
Area of Study 37
3.3
Sources of Data Collection 37
3.4 Model Specification 37
3.5 Description of the Research Variables 39
3.5
Method of Data Analysis 39
CHAPTER FOUR: PRESENTATION OF DATA, ANALYSIS AND DISCUSSIONS
4.1
Presentation of Data 41
4.2
Trend Analysis 42
4.2.1 Investment
Expenditure (INVEXP) 42
4.2.2 Trend of
Total Government Tax Revenue (TTR) 43
4.2.3 Trend to
Total Government Expenditure (TGEXP) 44
4.3 Regression
Analysis 45
4.4 Test of
Hypothesis 46
4.5 Discussion of
Results 46
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary of
Findings 48
5.2
Conclusion 48
5.3
Recommendation 49
APPENDIX
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1
Background to the Study
Nigeria is endowed with economic
potential for investment, growth and development with her vast oil and gas
resources, rich and expensive agricultural land, solid minerals and abundant
human resources. However, the Nigeria government regularly finds itself
engaging in extra- budgetary expenditure that is occasioned largely by the
observed suffering of the majority of the people. Looking at various fiscal
measures in the last two decades in Nigeria, one would observe that attention
has been focused on the rural poor. Despite the several fiscal measures
introduced since 1986, and given the prominence of fiscal policy in
macroeconomic management in Nigeria, growth has not accelerated and poverty
remains widespread and pervasive, particularly in the rural areas
(Ejuvbekpokpo, Sallahuddin and Clark, 2015). Fiscal policy is still widely
recognized as a potent tool for enhancing growth, redistributing income and
reducing poverty (though the Nigeria experience is tending to suggest
otherwise).
The use of fiscal policy is very
paramount in every society most especially in the less developed countries
(LDCs) as a major tool for stabilization and for development to be sporadic. Fiscal
policy as in many texts and literatures could mean the government actions
affecting its receipts (revenue) and expenditure which is taken as ordinarily a
measure by the government’s net receipts, its surplus or deficit. The
government may offset undesirable variations in private consumption and
investment by anti-cyclical variation of public expenditure and tax revenue.
Simply put, when the government uses government revenue and expenditure
policies to regulate and stabilize the economy toward development, the action
is fiscal policy. It thus serves as an economy’s “shock absorber” in specific
areas of development (Abdurrauf, 2015). Fiscal policy is essentially concerned
with manipulating the financial operations of the government with a view to
furthering certain economic policy objectives. In other words, it consists of
government decisions to vary certain fiscal aggregate such as total government
spending and tax revenues as opposed to some other aspects of public finance
which are primarily concerned with the effect of specific government
expenditures and taxes. Fiscal policy is majorly measured in terms of
government expenditure, tax revenue, government investment, budgeting and debts
(Abdurrauf, 2015). Fiscal policy is concerned with
decisions about certain variables such as total surplus or deficits in terms of
their effect or national income, total employment and the general price level.
This definition presupposes that fiscal policy deals with how government
generate revenue through taxation and other means and deciding on the level and
pattern of expenditure for the purpose of influencing economic activities. Iyoha
(2002), opined that fiscal policy involves the use of changes in government
expenditure and tax revenues to influence the level of economic activity. He
went further to say that the components of fiscal policy are taxation,
planning, government budget and debt management.
In Nigeria, the major fiscal policy instruments include changes in
taxation rate (on personal income, company income, petroleum profits, capital
gain, import duties, export duties and excise duties as well as mining rents,
royalties and NNPC earnings) and government expenditure (recurrent and
capital). These taxes along with interests and repayments, licenses and fees constitute
government revenue on the other hand, government expenditure constitutes an
instrument for direct resource allocation while generating employment
opportunities and influencing the government price level as well as determining
the extent of fiscal deficit or surplus each fiscal year (Iyoha, 2002). In
Nigeria today, emphasis has being on reducing government regulation, subsidies,
and distortions, increasing efficiency, and allowing the free market to
determine prices, including the foreign exchange rate. The growth in government
expenditure, both in absolute terms and relative to GDP, becomes evident as
years run by (Iyoha, 2002).
Over
the last decade, the growth impact of fiscal policy has generated large volume
of both theoretical and empirical literature. However, policy makers and
scholars alike appear divided on the possible impacts of fiscal policy on
investment expenditure in general. Proponents of government expansion are of
the view that government expenditures provide valuable public goods including:
education, roads, infrastructure, and security, among others (Mitchell, 2005).
They claim that increases in government spending are capable of enhancing
growth through, perhaps, rises in purchasing power of the citizenry, both in
the short- and long-run (Samson, 2013; Loizides and Vamvoukas, 2005).
Proponents of minimal government spending, however, are of the opinion that
high government spending do crowd out private investments and hence, undermine
economic growth. They are of the opinion that increases in government spending often
transfer resources from the productive sector of the economy to government,
where the resources are likely to be used inefficiently. They also argue that
expanding public sector can complicate efforts aimed at implementing pro-growth
policies such as, fundamental tax reform and personal retirement accounts
(Mitchell, 2005).
Hence,
this study seeks to examine the effect of fiscal policy on investment
expenditure in Nigeria.
1.2 Statement of the
Problem
There
has been a strong widespread evidence of pervasive and massive poverty in the
land in spite of growing public expenditure and fiscal deficit especially with
the economic recession of 2015 through 2017 occasioned by the global fall in
oil prices. Fiscal policy is still widely recognized as a potent tool for
enhancing growth, redistributing income and reducing poverty (though the
Nigeria experience is tending to suggest otherwise). The Nigeria scenario
reveals a less concentration on capital projects and a more concentration on
recurrent expenditure. This has negatively affected the nation’s investments
and economic growth.
Despite
the huge investment expenditure (both public and private) in Nigeria, the rate
of unemployment is still high, purchasing power of the people decreasing,
poverty becoming entrenched and economic growth dwindling. In sum, there was
severe macroeconomic imbalance-domestically and externally. It is apparent that
the Nigerian economy required major adjustment especially as it concerns fiscal
policy. In addition, considering the lofty place of fiscal policy in the
management of the economy, the Nigeria economy, through investment expenditure,
is yet to come on the path of sound growth and development. Study by Gbosi (2008),
indicates that the economy is still marred by chronic unemployment, rising rate
of inflation, dependence on foreign technology, monoculture foreign exchange
earnings from crude oil, low private and foreign investment and many more.
The problem faced in the country is
the lack of assessment of what form of fiscal policy rules will perform better
in reducing debt accumulation and promote investment and the necessary medium
term budget deficit stability. Can fiscal policy curb the problem of economic
growth and investment especially in capital projects? The study has become a
necessity due to the deteriorating state of the public funds, in the area of
revenue generation, allocation and implementation of fiscal policies in Nigeria
1.2
Objectives of the Study
The
main objective of this study will be to examine the effect of fiscal policy on
investment expenditure in Nigeria. The specific objectives of the study
include:
i.
To ascertain the effect of total
tax revenue on investment expenditure in Nigeria.
ii.
To determine the effect of total
government expenditure on investment expenditure in Nigeria.
1.4
Research Questions
Based on the specific objectives
earlier mentioned, the following research questions will be raised:
i.
In what ways has total tax
revenue influenced investment expenditure in Nigeria?
ii.
To what extent does total
government expenditure affect on investment expenditure in Nigeria?
1.5
Research Hypotheses
This
study will be anchored on the following hypotheses, (stated in null form):
H01: Total
tax revenue does not have significant effect on investment expenditure in Nigeria.
H02:
Total government expenditure does not have significant effect on investment
expenditure in Nigeria.
1.6 Significance
of the Study
This study will be important and useful in the
following ways:
i.
Government Policy Makers: This research will be of great benefit to the
Nigerian government and fiscal policy makers. This study will promote the
understanding of public officers on the concept of fiscal policy and the
efficient ways of managing financial resources in order to drastically reduce
unemployment or underemployment and promote investments for economic growth.
ii.
The findings of this study will proffer recommendations that if properly
implemented will definitely enhance growth in investment and development of the
economy.
iii.
Also, this research work will serve as a cradle for future researchers and
people who will have interest in this subject and who will wish to use it as
reference to their study.
1.7 Scope of the
Study
The study will empirically examine
the effect of fiscal policy on investment expenditure in Nigeria from 1999 to
2016. The basis for the 1999 as the base year is to capture the impact of
fiscal policies, as regulated by a democratic government in Nigeria, on
investment expenditure. The study will be limited to the use of data collected
from annual report of Central Bank of Nigeria.
1.8 Limitations of
the Study
No research work is devoid of
limitation (Baridam, 2008). Hence, this study is no exception in this regard.
Among the anticipated limitations to this study are financial constraints and
difficulty encountered in sourcing for data among others. However, the
researchers will work hard to overcome these challenges so as to put up
findings that can be relied upon.
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