CHAPTER ONE

INTRODUCTION

1.1  Background of the Study

       In countries working with the Federal Constitution as in Nigeria, there exists quite a wide and often bewildering variety of jurisdictions with different fiscal powers. One fundamental element that affects the activities of economic operations in both the private and public business domain is the government and its policy instruments. Generally, government influences economic and business activities by means of political and legal processes in the society. These political and legal influences include legislation and other policies established by the government through her regulatory agencies.

       Parker (2005) says policy simply means a statement of the goals and objectives of an organization in relation to a particular subject. Besides business legislation, government uses fiscal policy measures to control the economy and it is pertinent to note that our concern focuses on fiscal policy, which stabilizes the economy. When an economy is in a depressed state, it needs stimulation by government in the form of increased government spending, reduced taxes or both; when the economy is booming and inflation threatens, it needs to be dampened by government increasing taxes, reducing expenditures or both.

       Therefore, fiscal policies can unequivocally lead to the growth and development of an economy.

1.2  Statement of the Problem

       Undoubtedly, inefficient fiscal management causes economic crisis, while inadequate fiscal adjustment has often been cited as one of the constraints to achieving the expected turnaround in an economy.

       Consequently, a major issue in Nigeria’s economic recovery programme relates to the prospects of adopting the most relevant policies in the economy. According to Nnanna (2004), the Nigerian government fiscal policy instruments have had significant influence on the development and operation of the economy. This is so because fiscal policy measures helps in the provision of service that are essential to economic growth and development mainly by contributing through expenditure and income.

       The fiscal system of any country describes the institutional framework within which government undertaken its financial operations in the form of taxes, spending and borrowing. Fiscal policy measures concern itself with the furthering of certain economic policy objectives for the growth and development of a nation. In other words, fiscal policy measures consist of government decisions to vary certain fiscal aggregates such as total government expenditure and total tax revenues as opposed to some other aspects of public finance, which are primarily concerned, with the effects of specific government expenditure and revenues.

       The Keynesian revolution was also instrumental since the manipulation stabilization process on the economy using such variables as revenues and expenditure and fiscal budget as policy instruments for achieving macro economic objectives of reduction in import dependency, improved output in industry and agriculture as target areas. Furthermore, what actually constitute fiscal policy instruments and how they affect an economy would be the focus of this study.

1.3  Objectives of the Study

       The general objectives of the study is to examine the impact of fiscal policy measures on the growth and development of the Nigerian economy. However, the study would;

1. Examine the impact of company income tax on the performance of the Nigerian economy
2. Determine the effect of petroleum profit tax on the performance of the Nigerian economy.
3. Examine the relationship between excise duties and Nigerian economic performance level.

1.4  Research Questions

       The questions are formulated with respect to our earlier stated objectives of the study, so as to create efficient and clear level of understanding of a work of this nature.

1. Does company income tax affect Nigerian’s economic performance level?
2. Does petroleum profit tax affect Nigeria’s economic performance level?
3. What is the relationship between excise and the Nigerian economy?

1.5  Research Hypotheses

Arising from the above questions, the researcher wishes to state the following hypotheses aimed at providing answers to the questions raised in the study.

Ho: There no significant relationship between company’s income tax and GDP in Nigeria within the period under review.

H1: There is significant relationship between company’s income tax and GDP in Nigeria within the period under review.

Ho: There is no significant relationship between petroleum profit tax and GDP in Nigeria within the period under review.

H1: There is significant relationship between petroleum profit tax and GDP in Nigeria within the period under review.

1.6  Significance of the Study

The study is significant in a number of ways. Firstly, it has helped to broaden my knowledge and understanding on the complex relationship between fiscal policy and the growth and development of the Nigerian economy.

Therefore, it is my hope that as many students as possible that will come in contact with this study will find the study worthwhile. The result of this study will offer a great deal of encouragement and motivation toward their dreams and aspirations.

       The study will enhance government effort towards a better operation of the fiscal policy in Nigeria. It will be of immense benefit to the entire Nigeria society in creating awareness on the operation of fiscal policy and how they can derive their benefits therein. The research work will also make valuable contributions, suggestions and findings that will be of immense help to students, lecturers and researcher while the recommendations will also be useful for improved teaching methods and techniques.

1.7  Scope of the Study

       The study covers the period of 12 (twelve) years (1999-2011). It will cover the importance of Government Revenue and Expenditure (fiscal policy) on the growth and development of the Nigeria economy.

1.8  Organization of the Study

       This research study will be organized in five (5) chapter as follows:

       Chapter one is the introductory part which is concerned with the formal introduction of the research study under various sub-headings such as; Background of the study, statement of the problem, objectives of the study, research question, research hypotheses, significance of the study and definitions of terms.

       Chapter two is built on literature review and theoretical framework of analysis.

       Chapter three discusses the methodology of the research investigation such as research design, sources of data, data collection method, method of data treatment, model of specification and techniques of data analysis.

       Chapter four comprises presentation of data, analysis and discussion of findings.

       Chapter five is dedicated to summary of findings, conclusion and recommendations.

1.9  Definition of Terms

Fiscal policy: This refers to that part of government policy concerned with the raising of revenue through taxation and other means and deciding on the level and pattern of expenditure for the purpose of influencing economic development (Anyanwu, 2004).

Taxation: It is a levy on individuals or corporate bodies by central or local government in order to finance the expenditure of that government and also as a means of implementing its fiscal policy (Anyanwu, 2004).

Expenditure: The costs or expenses incurred by an organization. It is usually incurred by an outlay of money (Anyanwu, 2004).

Revenue: This is the income of a government from taxation excise duties, customs, or other sources, appropriated to the payment of the public expenses.

Inflation: This refers to an increase in the general level of the prices of goods and services, including wages and salaries (the prices of labour services). (Lyons 1983).

Also, inflation in economic refers to a state in which fewer goods and services is been chased by a bigger quantum of money.