CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

The economy of any country, irrespective of its structure is regulated by certain policies developed by the government. Some of these include economic policies, social policies, monetary policies etc. however of all these policies economic policies are most fundamental. The economic factors are cynical because they serve as a foundation for the success of the other policies of government. The constituent element of these economic policies need to be manipulated simultaneously to achieve the desired results. The techniques of manipulating the economic factors play an important role two. One of the essential arms of economic policies – the fiscal policy, serve as a means of planning, organizing, controlling and coordinating the tempo of activities in the economy. Fiscal policy in itself can be said to be made up of specific course of action involving the formulation of tax structure and expenditure patterns. The direction of these expenditures and taxes are specific in nature for results or changes. Before the world war, fiscal policy as a key to economic restructuring and development has been in existence. Many economists had propounded theories as a means to economic prosperity from the destruction of the world war, but in the early 20the century, Lord John Keynes put forward on articulated and constructive solution to solving economic problem. Lord Keynes in his book explain that the revamping of an economy could be achieved through the redirection of government expenditures from war machines to soft loans to increase investment, generate employment and consequently increase aggregate demand as a means of getting hold on the hyperinflation that existed after the Second World War.

In Nigeria, the earliest known forms of fiscal policies were used. It was established as far back as 19th century by the British Administration. Then the political system became complex due to the existence of the indigenous government under Emirs, Obas, Obongs, Obis etc. along with the colonial masters. In effect, payment for the administration of the country were made to the British government.

The government policy used by the colonial masters on revenue for development was adopted from Dr. Earl Grey report (1852) in which he advocated economic development amongst civilized people. Through self determination under the British supervision. Because of the existence of local authorities which led to indirect rule policy, the policy suited Nigeria. The revenue generation method which was based on duties paid on imported goods was pursued because it avoided disruption of the indigenous social and economic system and its incidence did not directly affect the average Nigerian. Besides, revenue from duties the British government support however, began to dwindle due to increase public criticism in Britain against spreading of Brutish influence in West Africa. 1870, the government supplement stopped and was reduced from #5,000.00 to #2,000.00 to #1,000.00 in 1862, 1863 and 1865 respectively.

The expenditure was solely directed towards improving the comfort of the British officers and the maintenance of law and orders. These and then. The revenue and expenditure volume also increase considerably well into the 20th century. Considering this modern time, fiscal policy as a means of economic development are not developed in isolation. They are formulated and implemented simultaneously with monetary policies, foreign policies by the government with the aim of having a synchronized approach in tackling economic problems. The generally accepted fiscal policy measure incorporates welfare economics as a means of reducing adverse effects that may arise thus reducing the standard of living of the citizens of the country.

From the foregoing, this research is aimed at identifying the role of fiscal policies in the development of Nigerian economy.

1.2       STATEMENT OF THE PROBLEMS.

Fiscal policies can be valuable tool for economic growth and development if accurately and timely implemented. Therefore by the end of this project the following questions will be answered.

1. Do Nigeria fiscal policies posses the required components and impact needed to fiscal economic growth?
2. Are the fiscal policies consistent or not?
3. Are they properly implemented?
4. Can any improvement be made

1.3       OBJECTIVES OF THE STUDY

1. To examine the fiscal policies formulation in Nigeria from 1998 – 2000
2. To identify the role they play in the development of Nigerian economy
3. To determine if these roles have been consistent with stated objectives of the government.
4. To determine the extent of implementation of formulated fiscal policies.
5. To make recommendation where appropriate.

1.4       MAJOR RESEARCH HYPOTHESIS.

In order to interpret the result of this research study, the following hypothesis are formulated

1.          Ho:     Fiscal policies have not helped in the development of Nigerian economy

H1:     Fiscal policies have helped in the development of Nigerian economy.

2.          Ho:     For some years now, fiscal policies have not been properly implemented.

H1:    For some years now, fiscal policies have been properly implemented.

1.5                   SCOPE AND LIMITATION OF THE STUDY

The scope of this research work has been limited to fiscal policy formulations and implementation in Nigeria between 1998 and 2000. it also includes the relationship between fiscal policies and other government economic policies how it is used to fight inflation, unemployment, encourage, investment/production of goods and services and generally encourage private participation in economy building.

This study further highlights the relevance of fiscal policies in the Nigeria economy. Its emphasis, encompasses the component of fiscal policies. Its relationship with other disciplines, how it is used in the economy. It does not however include comparison with other countries since economic structure and system differ and therefore would amount to unfair comparison. Constraints faced during this research work include.

1. Limitation of cost and time
2. Restricted access to some classified documents
3. Fiscal disability and scarcity of related items.

1.6       SIGNIFICANCE OF THE STUDY

As a result of unequal importance of a stable and unstable economy to both the public and private sectors, this research work will be of benefits to

1. Government for better planning of all policies related to their responsibilities to the economy in particular and the country as a whole.
2. The professional – who analyze the economic system and whom this study will give an insight into further research and application in their academic fields.
3. Students – as part of their academic pursuit.
4. The entrepreneurs and Business men who also need to understand the implications and effects of certain fiscal policies that can have on their fortunes directly or indirectly.

1.7       DEFINITION OF TERMS.

STATUTORY ALLOCATION: A fund established by the federal government for pooling of extra – budgetary revenue of unexpected income especially from oil exports. It also provided a sources of fund for emergency purpose

TAX: Compulsory payments by individuals corperate organization and partnership into the pursue of government for running of its activities.

TAX AVOIDANCE: A legitimate way of not paying tax by engaging in non-taxable activities.

TAX EVATION: An illegal way of not paying tax, one is liable to pay to the government. It is a criminal offence.

PER CAPITAL INCOME: A method of assessing the standard of living in any country. It involves determining potential income per person in an economy.

MULTINATIONALS: Large firms in Nigerian that are one of the numerous subsidiaries of the parent companies aboard.

FOREIGN POLICY: Articulated course of action that defines Nigeria’s relationship with other countries and its stand and attitude towards certain international issues.

BUDGET: An economic tool used by government to estimate its expected revenue and project expenditure over a period of time usually a year.

MARGINAL PROPENSITY OF INVESTMENT: That degree of increase in investment due to increase in income.

INFLATION RATE: The rate or speed at which the general price level are increasing.

MARGINAL PROPENSITY TO CONSUME: That degree of increase in consumption level as a result of increase income.

DEBT CONVERSION PROGRAMME: A system initiated by the federal government through the central bank in which the country’s external debts are sold through auction to interested parties.

NATIONAL ROLLING PLAN: A kind of fiscal policy adopted by government especially during 198 – 2000 year which aimed at achieving real economic growth and macroeconomic stability in order to fight the problems of unemployment and poverty in the society.