Econometric Analysis of the Effectiveness of Fiscal Policy in Economic Growth and Stability in Nigeria (1985-2003)

Abstract

This work focused on the Econometric  Analysis of the Effectiveness of Fiscal Policy in economic growth and stability in Nigeria between 1985 -2003. The study set four major objectives which include investigating the effect of fiscal policy on Gross Domestic Product , examining the effectiveness of fiscal policy in the control of inflation, determining the relationship between government spending and tax and to determine the effect of budget on investment or employment generation.  The study only utilized secondary data from the central bank of Nigeria.  The study specified a workable model in which GDP, inflation and balance of payment were the dependent variables white government expenditure , tax, capital formation ,foreign exchange rate, household consumption and money supply were independent variables. Ordinary least square [OLS] Technique, T-test, F-test  were used as analytical techniques. The study revealed that fiscal policy were effective in the control of the level of inflation and balance of payment since the coefficient of determination (R = 0.75 or 75%) was significant . on the flip side ; the study showed that fiscal policy was not effective in the control of GDP since the coefficient of the determination [R² = 48% ] was not significant . This was confirmed by the F-test and T-test value . The study recommended that government should redirect its expenditure towards productive venture so as to increase GDP.  Also, infant industries should be given tax concession since increase in tax decreases GDP and vice versa