The Impact of Government Expenditure on the Standard of Living of the People of Nigeria (1982

The Impact of Government Expenditure on Standard of Living of the People of Nigeria (1982 – 2012)

Chapter One

RESEARCH OBJECTIVES

The main aim of the study is to examine the impact of government expenditure on standard of living. Specific objectives of the study are:

To examine the impact of government expenditure on standard of living in Nigeria.
To determine the whether increase in government spending has improved the standard of living of the people of Nigeria.
To examine whether government expenditure on education and health care has had significant impact on the standard of living in Nigeria.

CHAPTER TWO

LITERATURE REVIEW

The Nature and Constituents of Government Expenditure

Government expenditures refer to the expenses that government incurs for its own maintenance, for the society and the economy as a whole (Weil, 2009). Government spending reflects the policy choices of government. Once government has decided upon the type and quantity of goods and services to provide, government spending represents the cost of carrying out these policies (Weil, 2009).

The rationale behind the need for expenditure is associated with the existence of externality or market failures, there is no reason to assume that additional public sector investments would be more productive than the private sector investments (Tanzi, 1997).

Government spending on public services has profound effect on the citizens’ standard of living and opportunities. Government spending on public services has the objectives of given the citizens chance to realize their fool potential (through education, training and work), building an inclusive and fair society and strengthening a competitive economy (Lin, 1994). Thus the objectives of public expenditure encompasses both equity and efficiency elements.

It is argued by some economists that efficiency improvement must be achieved at the expense of equity. However, inefficiency in the provision of public services has shown that opportunities for improved equity are lost because of wasteful use of resources (Bailey, 2002). This point is exacerbated to the point that both the provision and financing of public services crowds out the private sector and leads to reduced economic growth. Lower economic growth resultsto few resources being available for to pursue social programmes.

The provision and financing of public services is not simply concerned with the redistribution of income in favour of disadvantaged socio-economic groups in society. Social justice is not only concern with distributional issue, but with equality of opportunities, individual responsibility for self improvement and reward for merit and effort. In this scenario, improvements in efficiency and in equity are not mutually exclusive (Ketema 2006). According to Bhatia, (2008), what exactly constitute public spending is opened to question and the definition of public expenditure has changed on many occasions. Such changes are usually justified on technical grounds, and, generally, have attempted to separate that part of public expenditure over which central government has or no control from that part over which it does have (or could reasonably be expected to have) control, such changes may also be politically be expedient in allowing central government to claim success in controlling reducing expenditure.

Government expenditure can be represented by two broad categories of government activity: exhaustive expenditures and transfer expenditures. (Bhatia, 2008) Exhaustive public expenditures correspond to government purchases of current goods and services (labour, consumables etc), and capital goods and services (i.e. public sector investment on roads, electricity, schools, hospital etc). These expenditures involve purchases of inputs by public sector and are estimated by multiplying the volume of inputs by input prices.

Exhaustive government expenditures are viewed as claim on the resources of the economy. Use of these resources by the public sector precludes use by other sectors. The absorption of resources by the public sector means that the opportunity cost of these government expenditures is the forgone output of the other sectors. It is the opportunity cost argument of this kind that underlies the argument for those who frown upon larger size of public sector and that also form the basis of many techniques used to measure public sector efficiency. This arguments underpinned the crowding-out debate (Bhatia, 2008).

Thus, according to economists, an increase in government expenditures does not necessarily imply an increase in public output; neither does it always imply a reduction in efficiency, which makes efficiency calculation using national income data tricky (Brown and Jackson, 1996).

Transfer expenditures on the other hand (which includes expenditures on pension, subsidies, debt interest disaster relief packages, etc.) do not represent a claim on the society’s resources by the public sector as in the case of exhaustive public expenditures. Transfers are seen as a redistribution of resources between individuals in society, with the resources flowing through the public sector as intermediary (Bhatia, 2008).

The economic categories of exhaustive and transfer expenditures do not figure explicitly in public expenditure statistical series, since, they are used for analytical purposes, they have little value for accounting or planning purposes. The published public expenditure figures are the summation of many accounting components. This calls for and requires an understanding of accounting constituents of government spending for empirical analysis (Barley, 2002).Accounting components of government expenditure is made up of current and capital expenditures (Daravanjan et al 1996).

Current expenditure includes spending on wages and salaries, supplies and services, rent, pension, interest payments, social security payments, etc. These are broadly considered as consumable items, the benefits of which are consumed or exhausted within each financial year. Capital expenditures on the other hand, include spending on fixed assets such as road, schools, hospital, land, buildings, plants and machinery, etc. the benefits of which are durable and lasting several years.

CHAPTER THREE

THEORITICAL FRAMEWORK AND RESEARCH METHODOLOGY

INTRODUCTION

This chapter deals with the theoretical framework of this research, the sources of data that will be used for the empirical analysis and the retard of analysis that will be employed. This chapter also present the model specification for the purpose of the empirical analysis of this research work.

SOURCES OF DATA

The source of data for this research is namely secondary data which were obtained form the capital bank of Nigeria statistical bulletin (2012).

The data which were obtained from CBN statistical bulletin includes per capital income, capital government expenditure, recurrent government expenditure, unemployment, growth rate of per capita income, growth rate of gross domestic product.

The data will be collected for the period of 1982 to 2012.

MODEL SPECIFICATION

The models that will be used for the purpose of this research are presented below.

Model one is specified to show the impact of capital government expenditure and recurrent government expenditure on per capita income. Model two is specified to show the impact of capital government expenditure and recurrent government expenditure on unemployment level while the third model is specified to show the impact of capital government expenditure, recurrent government expenditure and growth rate of gross domestic product on the growth rate of per capita income.

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF RESULTS

DATA PRESENTATION

This research makes use of secondary data which were sourced from the central bank of Nigeria statistical bulletin (2012). The data collected are presented in the table below.

CHAPTER FIVE

SUMMARY RECOMMENDATION AND CONCLUSION

SUMMARY

This research study on the impact of government expenditure on standard of living in Nigeria (1982-2012). The objective of this research are to examine the impact of government expenditure on standard of living in the Nigeria economy and examining the growth of government expenditure and the factors that induces such growth. This research made use of secondary data, which were sourced from central bank of Nigeria statistical bulletin (2012). The data were collected for a period of 31 years (i.e. 1982-2012). The data collected were per capita income, recurrent government expenditure, capital government expenditure, unemployment, growth rate of per capita income, growth rate of gross domestic product. The ordinary least square regression technique was employed in the analysis of the data and the result of the analysis shown the following.

Government expenditure has a positive impact on per capital income
Government expenditure has a positive impact on unemployment in the Nigeria economy

Government expenditure has a positive impact on the growth rate of per capital income

RECOMMENDATIONS

Based on the conclusions made from this research the following recommendation are hereby proffered.

In order for the government to induce economic growth, the government should embark on an expansionary fiscal policy in which increase its expenditure and reduce the level of tax. Since it has been empirical proven that an increase in government expenditure will lead to growth in the economy, the government should induce growth by increasing its expenditure.
The government should direct most of its expenditure in investing in infrastructural facilities and social amenities, such as good road networks, pipeborne water, stable electrical power supply and so on. This will help to attract foreign investors into the Nigerian economy.

As part of an expansionary fiscal measure the government should create a tax concession for the manufacturing and agricultural industries. Subsides should be granted were possible. This will help to reduce the cost of productions in the sector and thereby lead to creation of job opportunities for the unemployed in these sectors.

The government should allocate a reasonable proportion of its recurrent expenditure on human capital development and create a favourable atmosphere for entrepreneurial activities. This will further help to reduce the rate of unemployment in the economy.

CONCLUSION

This research work is on the impact of government expenditure on the standard of living in Nigeria. From the empirical analysis of this research, the following conclusion can be drawn.

Government expenditure has a direct impact on the level of per capital income. This implies that an increase in government expenditure will lead to an increase in the level of per capita income in the economy.
Government expenditure has a direct impact on the level of employment in the economy. This implies that an increase in government will lead to a fall in the rate of unemployment. This is simply because an increase in government expenditure tends to boost economic activities such that there will be increase in the rate of unemployment opportunities.

Government expenditure has a direct impact on the growth rate of per capita income. This implies that an increase in government expenditure will lead to an increase in the level of per capital income and vice versa.

REFERENCES

TEXT BOOKS

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