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THE EFFECT OF TAXATION ON FISCAL POLICY DEVELOPMENT IN NIGERIA
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
There are several factor that are considered with view of the economic development of Nigeria, some of this factors include taxation, fiscal policies and social policies etc; but for the purpose of this study we shall consider the effect of taxation on fiscal policy development in Nigeria; taxation is one of the major pivot to consider when dealing with fiscal policy; Olanifa I.F (1994) in his work said that it is compulsory transfer of resources from private sector to the public economy of the nation. The direction of taxes is mostly noticed in its potential in the fiscal policy development and the economic growth of Nigeria. this can be done in the following ways:
1. it alters the determinants of economic development e.g. capital formation, technological change, factor supplies etc.
2. it permits the financing of the federal government activities or government financed private investment without the effect of the method of financing; the role of taxation can also be seen on the rate of the federal government expenditure on issues like resource allocation, and other distribution of wealth and income.
Another important aspect of the fiscal policy is on the area of revenue generation in Nigeria; since the federal government of Nigeria uses the fiscal policy in planning, controlling and co-ordinating of most of the economic activities in Nigeria; the fiscal policy will be made effective through revenue generation from taxes mostly; making the tax system of Nigeria the major tool for fiscal policy development.
The fiscal policy plays a major role in the distribution of resources round the nation so as to help control the nation in the time of economic recession.
Most of the economic policies today are becoming more fundamental i.e. it serves a foundation for the success of other policies of the government.
Sometimes the constituent elements of these economic policies need to be manipulated for a particular purpose, and most of them simultaneously for the desired result. One of the major root of both the economic policies and fiscal policy is related to government tax and expenditure. According to Baumel, W.J. and Blinder A.S., (1979) in the book “Economic principles and policy” he defines fiscal policy as governments plan for spending and taxation. It serves as a means of planning, controlling and co-coordinating the speed of activities in the economy.
1.2 STATEMENT OF PROBLEM
In Nigeria when the fiscal policy is very effective; the rate of allocation of resources and other funds will be a lot more easier for the federal government of Nigeria. The fiscal policy development has noticed a decline due to some of the reasons stated below:
1. The inability of the federal government of Nigeria to plan correctly and the rate of ad hoc tax holidays and incentives.
2. Lower rate of tax due to poor coverage by the tax agents
3. The lack of elasticity and buoyancy is another cause of this decline.
4. Another cause is the issue of time to time tax amnesties.
5. Finally; the inconsistency in the administration.
The inability of the federal government of Nigeria to establish a direct and precise statistical correlation between tax rates and private capital formation due to many factors and the time lag, changes in the tax base and other externalities determining investment has led to the poor Tax rates, saving and capital formation. Nevertheless historical and statistical trends tend to suggest that savings and private capital formation have been sensitive to effective tax incidence. The tax revenue continue to drop as the economy of the country continue to drop i.e. a drop in the GDP.
1.3 RESEARCH QUESTION
1. What are the effects of taxation on fiscal policy development?
2. What are the factors militating against the implementation of fiscal policies by the federal government of Nigeria?
3. What are the effects of weak administration on revenue generation through tax?
4. What are the roles of the federal government of Nigeria in the administration of tax?
5. What are the roles of fiscal policies in the stabilization of the Nigeria economy?
1.4 AIMS AND OBJECTIVES OF STUDY
The research work tries to resolve the issue on the effect taxation on fiscal policy development in Nigeria; with the above stated problems militating against the development of fiscal policies in Nigeria, the study came up with the following objectives to help in the resolution of the above problems
1. To determine the effect of taxation on fiscal policy development.
2. To determine the factors militating against the implementation of fiscal policies by the federal government of Nigeria.
3. To determine the effect of weak administration on revenue generation through tax.
4. To investigate the roles of the federal government of Nigeria in the administration of tax.
5. To explain the roles of fiscal policies in the stabilization of the Nigeria economy.
1.5 RESEARCH HYPOTHESIS
H0: there is no significant relationship between the taxation and fiscal policy development
H1: there is significant relationship between the taxation and fiscal policy development
Ho: Implementation of fiscal policy does not stabilize the economy.
Hi: Implementation of fiscal policy stabilizes of the economy.
1.6 SIGNIFICANCE OF STUDY
The research will be of immense help to the state and the federal government of Nigeria as it will elicit information on the effect of taxation on fiscal policy development in Nigeria, the study will discuss the role of the federal government of Nigeria in the administration of tax, it will discuss the effect of weak administration in revenue generation through tax, finally the research work will explain the factors militating against the implementation of fiscal policies by the federal government of Nigeria.
1.7 SCOPE OF STUDY
This study the effect of taxation on fiscal policy development in Nigeria will cover the various areas of taxation and its effect on the development of fiscal policy in Nigeria in order to achieve a good tax system and revenue generation for the growth and development of Nigeria economy.
1.8 LIMITATION OF STUDY
FINANCIAL CONSTRAINTS: financial constraints tends to impede the speed of the research student to buy materials and visit other areas of the federal government sector to get information and other materials concerning the research topic but the researcher was able to get meaningful information concerning the research topic.
TIME CONSTRAINTS: this researcher still being a student must be involved in one or two departmental activities like seminar presentation, submission of assignment, attendance to lectures etc but the researcher was able to meet up with the time allocated for the completion of the research work.
1.9 DEFINITION OF TERMS
TAXATION: taxation in accordance to the research topic is the process of tax payment for the development of fiscal policy.
FISCAL POLICY: fiscal policy in accordance to the study is that means by which the federal government of Nigeria adjust the rate of administration of tax, the rate of spending so as to effectively monitor the Nigeria economy.
REVENUE: revenue in accordance to the study is the money generated by the federal government of Nigeria through the administration of tax.
REFERENCES
Anderton A (2008): Economics 5th edition Pearson Education Edinbourgh, Harlow Essex. 2. Adefeso et al (2010): Bofiscal Policy and Economic Growth in Nigeria: Testing the Prediction of Endogenous Growth Model. The Social Sciences, Medwell Journals, Vol. 5, No. 2 3. Alexiou C. (2009): Government Spending and Economic Growth: Econometric Evidence from South Eastern Europe. Journal of Economic and Social Research, Vol.11, No.1 4. Yasin M. (2003): Public Spending and Economic Growth: Empirical Investigation of Sub-Saharan Africa. Southern Economic Review. www.ser/cu.edu. 5. Alex M. and Peter R. (2008): Fiscal Policy and Economic Development. IMF Working Paper 08/155; June 1, 2008. 6. Amanja D. and Morrissey O. (2005): Fiscal Policy and Economic Growth in Kenya. Centre for Research in Economic Development and International Trade, University of Nortingham. www.nortingham.ac.uk/economics/research/credit accessed 29/6/’10 7. Barro R. (1999): Notes on Growth Accounting. Journal of Economic Growth Vol.4 Page 119-137. 8. Burrow P. and Hitiris T. (1974) Macroeconomic Theory: A Mathematical Introduction. John Willey and Sons Chichecter. 9. CBN Report (2011): Fiscal Policy and Government Finance. Central Bank of Nigeria Annual Report, December 2011. 10. Bose N. et al (2007): Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countriesǁ, The Manchester School, vol. 75, no.5, pp.533-556. 11. Aigheyisi O. S. (2010): Examining the Relative Effectiveness of Monetary and Fiscal Policies in Nigeria: A Cointegration and Error Correction Approach, . [Online]. Available at SSRN:http://ssrn.com/abstract=1944585 [accessed date:13 May 2013] 12. Sharma B. (2012): Government Expenditure and Economic Growth in Nepal: A Minute Analysisǁ, Basic Research Journal of Business Management and Accounts, vol. 1, no.4, pp.37-40, 13. Muritala T. and Taiwo A. (2011): Government Expenditure and Economic Development: Empirical Evidence from Nigeriaǁ, European Journal of Business and Management, vol. 3, no.9, pp. 18-28. 14. Dandan M. M. (2011): Government Expenditure and Economic Growth in Jordan, IPEDR, vol. 4, pp. 467- 471. 15. IMF Country Report (2005): Paper on Recent Developments and Regional Policy Issues. Central African Economic and Monetary Community :; IMF Country Report 05/403; May 25, 2005 16. Olaloku F.A. et al (1987): Structure of the Nigerian Economy. Macmillan Publishers. Low cost editions. The University of Lagos Press. 17. Jhingan M.L. (2003): Macroeconomic Theory. 11th edition Vrinda Publicaitions (P) Ltd. 18. Paul A.S. (1970): Readings in Economics. New York McGraw Hill. 6th ed. 19. Stein H. (1968): Fiscal Policy in David L.Sills (ed). International Encyclopedia of Social Science Vol. 5. New York. Macmillian Pg 460)
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
There are several factor that are considered with view of the economic development of Nigeria, some of this factors include taxation, fiscal policies and social policies etc; but for the purpose of this study we shall consider the effect of taxation on fiscal policy development in Nigeria; taxation is one of the major pivot to consider when dealing with fiscal policy; Olanifa I.F (1994) in his work said that it is compulsory transfer of resources from private sector to the public economy of the nation. The direction of taxes is mostly noticed in its potential in the fiscal policy development and the economic growth of Nigeria. this can be done in the following ways:
1. it alters the determinants of economic development e.g. capital formation, technological change, factor supplies etc.
2. it permits the financing of the federal government activities or government financed private investment without the effect of the method of financing; the role of taxation can also be seen on the rate of the federal government expenditure on issues like resource allocation, and other distribution of wealth and income.
Another important aspect of the fiscal policy is on the area of revenue generation in Nigeria; since the federal government of Nigeria uses the fiscal policy in planning, controlling and co-ordinating of most of the economic activities in Nigeria; the fiscal policy will be made effective through revenue generation from taxes mostly; making the tax system of Nigeria the major tool for fiscal policy development.
The fiscal policy plays a major role in the distribution of resources round the nation so as to help control the nation in the time of economic recession.
Most of the economic policies today are becoming more fundamental i.e. it serves a foundation for the success of other policies of the government.
Sometimes the constituent elements of these economic policies need to be manipulated for a particular purpose, and most of them simultaneously for the desired result. One of the major root of both the economic policies and fiscal policy is related to government tax and expenditure. According to Baumel, W.J. and Blinder A.S., (1979) in the book “Economic principles and policy” he defines fiscal policy as governments plan for spending and taxation. It serves as a means of planning, controlling and co-coordinating the speed of activities in the economy.
1.2 STATEMENT OF PROBLEM
In Nigeria when the fiscal policy is very effective; the rate of allocation of resources and other funds will be a lot more easier for the federal government of Nigeria. The fiscal policy development has noticed a decline due to some of the reasons stated below:
1. The inability of the federal government of Nigeria to plan correctly and the rate of ad hoc tax holidays and incentives.
2. Lower rate of tax due to poor coverage by the tax agents
3. The lack of elasticity and buoyancy is another cause of this decline.
4. Another cause is the issue of time to time tax amnesties.
5. Finally; the inconsistency in the administration.
The inability of the federal government of Nigeria to establish a direct and precise statistical correlation between tax rates and private capital formation due to many factors and the time lag, changes in the tax base and other externalities determining investment has led to the poor Tax rates, saving and capital formation. Nevertheless historical and statistical trends tend to suggest that savings and private capital formation have been sensitive to effective tax incidence. The tax revenue continue to drop as the economy of the country continue to drop i.e. a drop in the GDP.
1.3 RESEARCH QUESTION
1. What are the effects of taxation on fiscal policy development?
2. What are the factors militating against the implementation of fiscal policies by the federal government of Nigeria?
3. What are the effects of weak administration on revenue generation through tax?
4. What are the roles of the federal government of Nigeria in the administration of tax?
5. What are the roles of fiscal policies in the stabilization of the Nigeria economy?
1.4 AIMS AND OBJECTIVES OF STUDY
The research work tries to resolve the issue on the effect taxation on fiscal policy development in Nigeria; with the above stated problems militating against the development of fiscal policies in Nigeria, the study came up with the following objectives to help in the resolution of the above problems
1. To determine the effect of taxation on fiscal policy development.
2. To determine the factors militating against the implementation of fiscal policies by the federal government of Nigeria.
3. To determine the effect of weak administration on revenue generation through tax.
4. To investigate the roles of the federal government of Nigeria in the administration of tax.
5. To explain the roles of fiscal policies in the stabilization of the Nigeria economy.
1.5 RESEARCH HYPOTHESIS
H0: there is no significant relationship between the taxation and fiscal policy development
H1: there is significant relationship between the taxation and fiscal policy development
Ho: Implementation of fiscal policy does not stabilize the economy.
Hi: Implementation of fiscal policy stabilizes of the economy.
1.6 SIGNIFICANCE OF STUDY
The research will be of immense help to the state and the federal government of Nigeria as it will elicit information on the effect of taxation on fiscal policy development in Nigeria, the study will discuss the role of the federal government of Nigeria in the administration of tax, it will discuss the effect of weak administration in revenue generation through tax, finally the research work will explain the factors militating against the implementation of fiscal policies by the federal government of Nigeria.
1.7 SCOPE OF STUDY
This study the effect of taxation on fiscal policy development in Nigeria will cover the various areas of taxation and its effect on the development of fiscal policy in Nigeria in order to achieve a good tax system and revenue generation for the growth and development of Nigeria economy.
1.8 LIMITATION OF STUDY
FINANCIAL CONSTRAINTS: financial constraints tends to impede the speed of the research student to buy materials and visit other areas of the federal government sector to get information and other materials concerning the research topic but the researcher was able to get meaningful information concerning the research topic.
TIME CONSTRAINTS: this researcher still being a student must be involved in one or two departmental activities like seminar presentation, submission of assignment, attendance to lectures etc but the researcher was able to meet up with the time allocated for the completion of the research work.
1.9 DEFINITION OF TERMS
TAXATION: taxation in accordance to the research topic is the process of tax payment for the development of fiscal policy.
FISCAL POLICY: fiscal policy in accordance to the study is that means by which the federal government of Nigeria adjust the rate of administration of tax, the rate of spending so as to effectively monitor the Nigeria economy.
REVENUE: revenue in accordance to the study is the money generated by the federal government of Nigeria through the administration of tax.
REFERENCES
Anderton A (2008): Economics 5th edition Pearson Education Edinbourgh, Harlow Essex. 2. Adefeso et al (2010): Bofiscal Policy and Economic Growth in Nigeria: Testing the Prediction of Endogenous Growth Model. The Social Sciences, Medwell Journals, Vol. 5, No. 2 3. Alexiou C. (2009): Government Spending and Economic Growth: Econometric Evidence from South Eastern Europe. Journal of Economic and Social Research, Vol.11, No.1 4. Yasin M. (2003): Public Spending and Economic Growth: Empirical Investigation of Sub-Saharan Africa. Southern Economic Review. www.ser/cu.edu. 5. Alex M. and Peter R. (2008): Fiscal Policy and Economic Development. IMF Working Paper 08/155; June 1, 2008. 6. Amanja D. and Morrissey O. (2005): Fiscal Policy and Economic Growth in Kenya. Centre for Research in Economic Development and International Trade, University of Nortingham. www.nortingham.ac.uk/economics/research/credit accessed 29/6/’10 7. Barro R. (1999): Notes on Growth Accounting. Journal of Economic Growth Vol.4 Page 119-137. 8. Burrow P. and Hitiris T. (1974) Macroeconomic Theory: A Mathematical Introduction. John Willey and Sons Chichecter. 9. CBN Report (2011): Fiscal Policy and Government Finance. Central Bank of Nigeria Annual Report, December 2011. 10. Bose N. et al (2007): Public Expenditure and Economic Growth: A Disaggregated Analysis for Developing Countriesǁ, The Manchester School, vol. 75, no.5, pp.533-556. 11. Aigheyisi O. S. (2010): Examining the Relative Effectiveness of Monetary and Fiscal Policies in Nigeria: A Cointegration and Error Correction Approach, . [Online]. Available at SSRN:http://ssrn.com/abstract=1944585 [accessed date:13 May 2013] 12. Sharma B. (2012): Government Expenditure and Economic Growth in Nepal: A Minute Analysisǁ, Basic Research Journal of Business Management and Accounts, vol. 1, no.4, pp.37-40, 13. Muritala T. and Taiwo A. (2011): Government Expenditure and Economic Development: Empirical Evidence from Nigeriaǁ, European Journal of Business and Management, vol. 3, no.9, pp. 18-28. 14. Dandan M. M. (2011): Government Expenditure and Economic Growth in Jordan, IPEDR, vol. 4, pp. 467- 471. 15. IMF Country Report (2005): Paper on Recent Developments and Regional Policy Issues. Central African Economic and Monetary Community :; IMF Country Report 05/403; May 25, 2005 16. Olaloku F.A. et al (1987): Structure of the Nigerian Economy. Macmillan Publishers. Low cost editions. The University of Lagos Press. 17. Jhingan M.L. (2003): Macroeconomic Theory. 11th edition Vrinda Publicaitions (P) Ltd. 18. Paul A.S. (1970): Readings in Economics. New York McGraw Hill. 6th ed. 19. Stein H. (1968): Fiscal Policy in David L.Sills (ed). International Encyclopedia of Social Science Vol. 5. New York. Macmillian Pg 460)
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