The Impact of Tax on Government Capital Expenditure and Economic Growth in Nigeria
Chapter One
OBJECTIVE OF THE STUDY
The main objective of the study is to ascertain the impact of government expenditure on economic growth in Nigeria. But to aid the successful completion of the study, the researcher intends tp achieve the following specific objectives;
- To ascertain the impact of tax on government expenditure and economic growth
- To examine the relationship between government expenditure and economic growth in Nigeria
- To examine the effect of government expenditure on the gross domestic product of the country
- To ascertain the role of government in expenditure on the growth of Nigeria’s economy
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
In Nigeria Government capital expenditure has continued to rise due to the huge receipt from production and sale of crude oil, increase tax revenue, and the increase demand for public goods like road, communication, power, education and health. Beside there is the increasing needed to provide both internal and external security for all the people and the nation. Available statistic showed that government capital expenditure has continued to rise in the last three decades. For instance government capital expenditure increased from N187. 8 million in 1970 to N10,163.4 million in 1980 and further to N960,900 million in 2008. Unfortunately rising government expenditure has not translated to meaningful economic growth and development as Nigeria ranks amongst the poorest countries in the world (Baghebo, 2011). Throughout the 1970s and 1990’s much of Public Sector investment which accounted for two third of total investment during the period 1973 – 90 was directed towards promoting economic growth. Unfortunately the growth rate was very poor. For instance the growth rate of real GDP was – 0.3%, -5.4% and -5.1% in 1983, 1984 and 1985 respectively which were inadequate to support a population growth rate of three percent. Similarly in 1993, the growth rate of real GDP was 2.7 percent, and one percent in 1994 which was too low to support the population growth rate of 2.8 percent (CBN, 1996). Indeed, rapid economic development and improvement in the quality of life have not been realized as many Nigerians are poorer today than they were in the 1960s and 1970s. For instance at independence in 1960, Nigeria’s poverty rate was 15 percent and this translated into about 8 million Nigerians. Forty five years after independence (2005) the population living below the international poverty bench mark of $1 a day was 54.4 percent (Baghebo, 2001; 2011). Niloy and Osborn (2003), Baghebo and Edoumiekumo (2012) used a disaggregated approach to investigate the impact of public expenditure on economic growth and development in 1970s and 1980s and 1970-2010 respectively. The authors confirmed that government capital expenditure in GDP has a significant positive impact on economic growth, but the share of government current expenditure in GDP was shown to be insignificant in explaining economic growth and development. Abdulah (2010) analyzed the association between government expenditure and economic growth in Saudi Arabia. His findings reveal that the size of government is very important in the performance of the economy. He added that government should increase its spending on infrastructure, social and economic activities. In addition, government should encourage and support the private sector to accelerate economic growth. In the United Kingdom, Greece and Ireland, Lizides and Vamvoukas (2005) employed the Granger causality test to examine the relationship between government expenditure and economic growth. The authors found that government size granger cause economic growth in all the countries they studied. The findings were true for Ireland and the United Kingdom both in the short and long run. The result also indicated that when inflation was included as an explanatory variable in the model, economic growth granger cause public expenditure for Greece and United Kingdom (See Baghebo, 2010, Baghebo and Edoumiekumo, 2012 for this and related issues). Baghebo and Edoumiekumo (2012) used the disaggregated approach to examine the relationship between public capital accumulation and economic development in Nigeria covering the period 1970 – 2010. The stationary status of the time series data was determined using group Unit root test. The variables attain stationary after first difference. The long run equilibrium relationship among the variable in the model was examined using Johanson co integration rank test of trace and maximum engen value test. The variables were co integrated. The short run dynamic adjustments required for stable long run equilibrium relationship among the variables was estimated using the Error correction mechanism. The result revealed that an insignificant positive relationship exist between capital expenditures and economic development in Nigeria. Davarajan et al. (1996) studied the impact of government expenditure on economic growth for a group of developing countries using the ordinary least square (OLS) regression technique. The result shows that capital expenditure has a significant negative association with growth of real per capita GDP. However, the result further reveals that recurrent expenditure is positively related to GDP per capita. In Thailand, Komain and Brahmasrene (2007) empirically investigated the relationship between government expenditure and economic growth by employing the Granger causality test. The results revealed that government expenditure and economic growth are not co integrated. Moreover, the results indicated a Unidirectional causality from government expenditure to growth.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine the impact of government on economic growth in Nigeria 1980-2016.
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment, the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information on the study the impact of government expenditure on economic growth in Nigeria. 200 staff of central bank of Nigeria was selected randomly by the researcher as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of government expenditure on economic growth in Nigeria 1980-2016
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of government expenditure on economic growth in Nigeria.
Summary
This research work investigates the impact of government expenditure on economic growth in Nigeria 1980 to 2016. The co-integration test employed revealed that there is a long run relationship between the Real Gross Domestic Product (RGDP) and the explanatory variables; Government Capital Expenditure (GCEXP) and Government Recurrent Expenditure (GREXP). The normalized integrating coefficients for one counteracting equation given by the long-run relationship indicated that the constant value is negative which means that the proportion in the real gross domestic product (RGDP) in Nigeria tends to decrease, keeping other variables constant in the long-run.
Conclusion
As mentioned earlier, the study seeks to investigate the effect of federal government expenditure (capital and recurrent) on economic growth in Nigeria for the period 1980-2016. The researcher investigated within the scope of study and found that total government expenditure contributes positively to economic growth in Nigeria. Based on this result, the researcher rejects the null hypotheses and concludes that there is a significant relationship between federal government expenditure (capital and recurrent) and economic growth in Nigeria.
Recommendations
Based on the findings, the researcher recommends the following: Since government expenditure has been found to induce growth, the federal government should engage in more productive endeavors and direct resources to projects with long term benefits. Government capital expenditure especially on agriculture and industry should be properly managed as they have the potential of raising the nation’s production capacity and generating employment. Government should increase its expenditure on rural roads and electricity as this will accelerate private sector growth as well as raise the standard of living of poor citizens in the country. Government should pay its workers regularly. When workers receive their salaries regularly, there is an improvement in their standard of living and it signifies growth in the economy.
Reference
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