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

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