CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigeria’s potential for growth and economic stability is yet to be achieved, as a result; the country’s economy has witness so many shocks and disturbances both internally and externally over the decades. The continuous fluctuations in the country’s economic activities according to Gbosi (2001) has led to the periodical increase in the country’s unemployment and inflation rates as well as the external sector disequilibria. National economic management became a Herculean task as the economy has to contend with volatility of revenue and expenditure. The widespread lack of fiscal discipline was further exacerbated by poor co-ordination of fiscal policy among the three tiers of government. Also, there is a weak revenue base arising from high-marginal tax rate with very narrow tax base, resulting in low tax compliance. As a result of these and other factors, serious macroeconomic imbalances have emerged in Nigeria (Agu, Idike, Okwor & Ugwunta, 2014).
The federal government uses fiscal policy and monetary policy as two major tools for affecting the macro-economy. These policy interventions according to Jeffrey (2019) are generally used to either increase or decrease economic activity to counter the business cycle’s impact on unemployment, income, and inflation. Fiscal policy as one of the major economic stabilization weapons involves measure taken to regulate and control the volume, cost and availability as well as direction of money flow in an economy to achieve some specified macroeconomic policy objective and to counteract undesirable trends in the Nigerian economy (Gbosi, 2001).
Ugwunta and Idike (2015) see Fiscal policy as a means by which government adjusts its level of spending to monitor and influence a nation’s economy. They also consider Fiscal policy as when the government uses its spending and taxing powers to have an impact on the economy. The combination and interaction of government expenditures and revenue collection is a delicate balance that requires good timing and a little bit of luck to get it right. The direct and indirect effects of fiscal policy can influence personal spending, capital expenditure, exchange rates, deficit levels, and even interest rates, which are usually associated with monetary policy (Schmidt, 2018).
When the government decides on the goods and services it purchases, the transfer payments it distributes, or the taxes it collects, it is engaging in fiscal policy (Ikeora. 2007). The primary economic impact of any change in the government budget is felt by particular groups, a tax reduction for families with children, for
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