International Journal of Scientific Research

Transcription

1 International Journal of Scientific Research Vol. II, Issue 4, 2017 FISCAL POLICY AND EMPLOYMENT IN AN EMERGING ECONOMY: THE NIGERIA EXPERIENCE 1. UDEORAH, Sylvester Department of Economics, University of Port Harcourt, Nigeria 2. OBAYORI, Joseph Bidemi Department of Economics, Nnamdi Azikiwe University Awka, Nigeria 3. KROKEYI, Selekekeme Wisdom Niger Delta University, Wilbeforce Island Amassoma Bayelsa State, Nigeria Abstract In an emerging economy like Nigeria, low level of employment rates is one of the macroeconomic problems and this has reflect a weak recurring states since the onset of the global financial crisis. Thus, the need to adopt a wellarticulated policy is require in stemming the problem of low employment. Thus, the paper examined fiscal policy and employment in Nigeria. The objectives of the study were to: determine the causal relationship between government expenditure and tax revenue on employment in Nigeria during the period of 1980 to Data for the study was obtained from the CBN statistical bulletin. Also, the granger causality test was the methodical approach used for the analysis. The result of the ADF unit root test to ascertain the stationarity of the variable used for the analysis showed that all the variables were stationary at order one. Moreover, the result of the granger causality test conducted to ascertain the causal effect between the dependent and independent variables in the model showed that government expenditure and taxation impact on employment in Nigeria during the period of study. Thus, the findings from the study corroborate Keynes assumptions that increase in government spending and reduction in tax will help to generate employment. Based on these findings, the study recommends that expansionary fiscal policy visavis increase in government expenditure and reduction in taxes should be encouraged Iin an emerging economy like Nigeria as it plays vital role in boosting production and hence an increase in the rate of employment the economy. Key words: Employment, Tax Revenue, Government Expenditure, Unemployment, Fiscal Policy 1.0 INTRODUCTION In any economic system, there is always the need for government to undertake very useful measures or policies to create jobs and reduce unemployment. One of such policy is fiscal policy visàvis government spending and tax revenue. The connection between Licensed under Creative Common Page 18

2 fiscal policy and employment characterizes one of the most broadly deliberated issues among public commentators in both advanced and emerging countries (Obayori, 2016). This relationship can either be negative, positive or inconclusive relationship depending on the methodology, the country and the nature of the data used by the different scholars. Thus, fiscal policy is concerned with action of the government to spend money, or to collect money in taxes, with the purpose of influencing the condition of the national economy TomEkine (2014). Fiscal policy could be expansionary or contractionary. It is expansionary when government expenditures are increased and taxes reduced and contractionary when government expenditures reduced and taxes increased. Thus, expansionary fiscal policy is needed to combat the ills of unemployment and hence create employment for the populace (Onwuka, 2010 and Obayori, 2016). Meanwhile, the quest to generate employment opportunities for abundant human resources which keeps on growing yearly always preoccupies the attention of policy makers in various emerging economies around the world. This is normally reflected in their policy thrusts, with the fundamental intent of evolving enabling environment towards jobs creation. Thus, employment is generated when job opportunities are provided by the government through tax revenue and increase in government spending in the provision of social and economic infrastructural amenities in the economy. This implies that the provision of infrastructural facilities through public funds has dual purpose of generating employment opportunities directly while at the same time using the amenities towards encouraging the productive sectors in order to produce and provide employment opportunities for the labour force (Abdullahi (2014) and Jhinghan, 2008). Meanwhile, in Nigeria, the problem of budget deficit has been a reoccurring decimal and this serves as a bane I the aspiration of the lofty objective of government in reduction in unemployment rate to the beeriest minimum (Obayori, 2016). Similarly, Oloye (2012) opined that the Oloye (2012) opined that the advancement of budget shortfall as a segment of fiscal planning is frequently followed to the Keynesian proposed public spending growth of the 1970s. In this way, empirical findings has demonstrated that the government spending, which stood at eight hundred and thirtynine million naira in 1970, jumped significantly to about five billion naira in 1975 and from there on rose further to over fourteen billion naira in In the Nigerian economy, statistical and empirical facts show that employment rate has been very low and this makes unemployment rate to increase over the years. For example unemployment decreased from 6.4 percent in 1980 to 5.7 percent in 1990; it then increased to 11.5 percent in the 2000 and 2010, and made an average increased to 14.3 percent between 2001 and 2015 (Obayori, 2016). The persistence increase in unemployment means that estimates of more than 70 percent of Nigerians lived in poverty. This calls for the need to use the instruments of fiscal policy, particularly, government expenditure and taxation to create employment in Nigeria in order to drive the economy towards sustainable growth (Gbosi, 2015). Over the years there has been an attempt by various administrations in Nigeria to use different policy measures to create employment. Some of those measures include; the national directorate of employment (programme which aimed at creating job for the population of the teaming youths. Also, agricultural development programme and family support programme were initiated to ameliorate the problem of unemployment. But, in Licensed under Creative Common Page 19

3 spite of government efforts at formulating measures at overcoming inept fiscal policy interm of favourable tax, productive spending in infrastructures in order to increase the level of employment, reverse has always be the case in the federal republic of Nigeria in which the situation adversely influence the basic macroeconomic factors (Anyanwu and Oaikhenan, 1995; Obayori, 2016). Therefore, it is necessary to examine the impact of fiscal policy on employment in Nigeria and make appropriate policies recommendation to solve the problem of unemployment in the Nigerian economy if Nigeria will achieve her vision 2020.The remaining part of this paper is therefore divided into literature review, methods of study, results and discussion as well as conclusion and recommendations. 2.0 Literature Review Theoretically, the Keynesian theory of employment averred that rise in government spending and decrease in tax will contributes meaningfully to reduction in unemployment. Thereby creating a substantial level of employment. Thus, Keynesian theory of employment is functionally stated as Q = f(k) (2.1), where; Q is the rate of employment, and K is government spending. From this equation, increase in government spending helps to boost the level of employment in an economy. Also, a reviewed of different empirical works with different quantitative techniques reveals that the relationship between fiscal policy measures and employment could be positive or negative.for instance, Michele (2005) by using the United State economy carried out an empirical research on the impact of fiscal policy shocks on employment. He discovered that consumption expenditure and fiscal shock lead to a negative and significant wealth and increase labour supply. Furthermore, his findings showed that shock in government employment has negative influence on private output and a positive impulse for government output. Anthanasios (2013) utilized the SVAR procedure to discover the connection between unemployment, development and financial strategy in Greece. Results from the examination demonstrate the impact of cuts in government purchases and government utilization on unemployment and yield to be sizable, while the impact of government speculation is to a lesser degree. Increase in tax was found to decrease output and increases unemployment rate. Danjuma and Bala (2012) used descriptive statistics to survey the role of governance in job creation in Nigeria. They discovered that unemployment in Nigeria generated tension and animosity between the people as well as other social vices like prostitution and armed robbery. Similarly, using the OLS and the cointegration techniques to analyze the empirical effect of fiscal deficit on macroeconomic aggregate in Nigeria between 1980 and Elizabeth (2013) is of the view that that fiscal deficits has an insignificantly effect on macroeconomic outcome such as unemployment level. Holden and Sparrman (2013) analyzed the impact of government spending on unemployment in twenty OECD nations for the period 1980 to The finding showed that an expansion in government spending by one percent decrease unemployment by around 0.3 percent. Obayori (2016) used ECM approach to investigate fiscal policy and unemployment in Nigeria from 1980 to The findings showedthatgovernment capital and recurrent Licensed under Creative Common Page 20

4 expenditure negatively and significantly affectunemployment in Nigeria. Similarly, Attahir (2016) used SVAR to examine the impact of fiscal policy shocks on output and unemployment in Nigeria between 1981 and The SVAR model showed that shock in government expenditure has positive effect on output. Also, revenue shock was found to exert a positive effect on output. However, the effect of revenue shock on unemployment was found to be negative. Meanwhile, the current study used the econometric methods of ADF unit root test and granger causality test to analyze the data on the empirical study of fiscal policy and employment in Nigeria. The choice of granger causality technique is to determine causal effect of fiscal policy measures on employment. 3.0 METHODOLOGY The study is quantitative in nature and thus uses time series data sourced from the publications of Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS). Thus, fiscal policy tools serve as the independent variables and they are total; government expenditure and government taxation. While the dependent variable is employment rate. Model Specification The functional and econometrics effect of aggregate fiscal policy tools on employment is expressed as; EM = f (GE,GT) (3.1) EM = β0 + β1gs + β2gt + µ (3.2) Where: EM is Employment Rate, GE is Government Expenditure, GT is Government Taxation, µ is stochastic random variable, βo is intercept parameter, β1 β2 are Slope parameters and t is Time/Period. On the apriori it was expected that; β1 > 0 and β2> 0 Estimation Technique and Procedure ADF Unit Root Test The study conducted a stationarity test for each variable by employing the augmented DickeyFuller test proposed by Dickey and Fuller (1979) to check for the stationarity properties of each variable in order to avoid any spurious regression. The general form of ADF is estimated by the following regression Δ Yd t = β 0 + β 1 Yd t1 + Σ β 1 ΔYd i + δ t + µ t (3.3) Where: Yd is a time series, t is a linear time trend, Δ is the first difference operator, β 0 is a constant, t1 is the optimum number of lags in the independent variables and µ is random disturbance term. The Granger Causality Test Granger causality test shows the direction of effect between two time series. Such effect could be bilateral, bidirectional, unidirectional and independence causality. The general form of granger causality is estimated by considering two variables employment (EM) and government spending (GE) in the following regressions: n n EMt = Σ Ψ1GEt1 + Σ Ω1EMt1+ε1t (3.4) Licensed under Creative Common Page 21

5 t = 1 t = 1 n n GEt = Σ ω1emt1 + Σ θ1get1 + ε2t (3.5) t = 1 t = 1 Where it is assumed that the disturbances e1t and e2t are uncorrelated, the two variables case is called bilateral causality. Also, from the EM and GE in the equations, unidirectional causality from EM to GE exists if the set of lagged GE coefficients in (3.4) is not statistically different form zero (i.e., Σω1 0) and the set of the lagged EM coefficients in (3.5) is statistically different from zero (i.e., Σθ1 0). 4.0 RESULTS AND DISCUSSION 4.1 Analysis of Time Series Properties of the Variables Before the unit root test is conducted, there is the need to test for the properties of the time series to ascertain the significance of the variables at either intercept or the combination of intercept and trend. Table 4.1:Time Series Properties of the Variables Variable tstat @ INTERCEPT (C) EM GE GT INTERCEPT (C) Time C and Trend Time Trend only Time C and Trend Source: Researcher s Computation from (E view 9.0) Table 4.2: Unit Root Test of Stationarity ADF Critical ADF Test Critical Value Order of Variab 1 ST Integratio le Level 1% 5% 10% Diff 1% 5% 10% n EM 1(1) * GE * (1) Licensed under Creative Common Page 22

6 GT * (1) The time series properties in table 4.1 show that the variables (EM and GT) have time series at both intercept and trend. This is because their respective tstatistics and probability values were statistical significant at 5% level at intercept and trend. Meanwhile the variables government expenditure (GE) had time series at only trend. This is because their tstatistics and probability values were statistical significant at 5% level at both intercept and trend. Therefore, the ADF unit root test for the variables EM and GT was conducted at intercept while that of government expenditure (GE) was conducted at none. The Augmented Dickey Fuller (ADF) test was used to investigate stationarity of the variables. Source: Authors Computed Result Using (EViews 9.0) Note: *** represent the rejection of the null hypothesis at alpha 1%, 5% & 10% respectively. The stationarity of each of the series is presented in tables 4.2 above using the ADF tests. The results presented in tables 4.2 revealed that none of the variables was stationary at level. Bu the nonstationary variables were differenced once. Thus, all the variables are stationary or homogenous of order one. That is, they were stationary at first difference prior to subsequent estimations to forestall spurious regressions. Hence, the entire variables in this study are stationary. Table 4.3: Pairwise Granger Causality Test Result Variables Observation FStatistic Prob. Decision (GE) (EM) Reject Ho (EM) (GE) Accept Ho (GT) (EM) Reject Ho 34 (EM) (GT) Accept Ho Source: Researcher s Computation from (E view 9.0) Note: means does not granger cause and EM, GE and GT as earlier defined In order to find out the direction of the effect of fiscal policy on unemployment, the Pairwise Granger Causality Test was conducted. The results presented on table 4.3 showed a unidirectional causality between the government expenditure (GE) and employment (EM) as well as government tax (GT) and employment (EM). Meaning that government expenditure and taxation granger causes employment. This further reveals that the variables government expenditure and taxation impact on employment. This implies that government expenditure in the right direction will significantly reduce the rate of unemployment and increase the level of employment in Nigeria during the period of study. The finding is in line with the empirical work of Obayori (2016). Also, the result Licensed under Creative Common Page 23

7 showed that government collected tax revenue impacted on employment in Nigeria during the period of study. This implies that government taxation significantly increase the rate of employment in Nigeria during the period of study. The finding supports the view of Gbosi (2015). 5.0 CONCLUSION AND RECOMMENDATIONS The study surveyed the influence of fiscal policy on employment in Nigeria. Thus, an increasing level of employment is one of development indicators of an economy. Thus, the need to adopt a wellarticulated policy is require in stemming the problem of unemployment to the beeriest minimum is required. The study employs the granger causality test approach as the main econometric tool to ascertain the causal effect between the dependent and the independent variables in the model. The results showed that government expenditure and taxation impact on employment in Nigeria during the period of study. Meaning that fiscal policy tools of government expenditure and tax revenue are effective in achieving an increase in the level of employment in Nigeria. Thus, the findings from the study correspond to Keynes assumptions that increase in government spending and reduction in tax will help to generate employment. Based on these findings, the study recommends that expansionary fiscal policy visavis rise in government expenses and decline in taxes as it plays vital role in increasing employment rate of an economy. Also, government should expand its revenue base visavis efficient taxation scheme. REFERENCES Abdullahi, S. A. (2014). Impact of Government Expenditure on Employment Generation: Evidence from Nigeria. Department of Financial Studies Faculty of Management Sciences National Open University of Nigeria, Lagos. Retrieved online, March, 2016 Anthanasios, O.T. (2013). The unemployment effects of fiscal policy: Recent evidence from Greece. IZA Journal of European Labour Studies, 2(11) Anyanwu, J.C. & Oaikhenam, H.E. (1995). Modern Macroeconomics: Theory and Application in Nigeria. Joanee Educational Publisher Ltd. Attahir, B. A. (2016). Dynamic Effects of Fiscal Policy on Output and Unemployment in Nigeria: An Econometric Investigation. CBN Journal of Applied Statistics, 7( 2) Central Bank of Nigeria (2001). Annual Report and Statement of Accounts, Various Years. Danjuma, A. & Bala, K. (2012). Role of Governance in Employment Generation in Nigeria. Journal of Business and Management, 3(3), 2731 Dickey, D.A., & Fuller, W.A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association. 74(1), Elizabeth, W. (2013). Macroeconomic Aggregates and Fiscal Deficits in Nigeria Arabian Journal of Business and Management Review 2(9). Licensed under Creative Common Page 24

8 Gbosi, A. N. (2015). Contemporary Macroeconomic Problems and Stabilization Policies. Port Harcourt: Automatic Ventures. Holden, S., & Sparrman, V. (2013). Do Government Purchases Affect Unemployment? (Accessed August 28, 2013). Keynes, J.M. (1934). The General Theory of Employment, Interest and Money. New York: Macmillan Publishers. Michele, C. (2005). Government Employment and the Dynamic Effects of Fiscal Policy Shocks. Working Paper Series Federal Reserve Bank of Sanfransisco. Obayori, J.B. (2016). Fiscal Policy and Unemployment in Nigeria. The International Journal of Social Sciences and Humanities Invention. Volume 3(2) Oloye. D.O. (2012). Fiscal Approach to Balance of Payments: A Case of Nigeria. A Published M.Sc. Thesis of Department of Economics and Development Studies, College of Development Studies Covenant University Ota Onwuka, E.C. (2010). Fundamentals of Macroeconomics. Ekpoma: Destiny Publishers TomEkine, N. (2014). Macroeconomics: Dimensions of Competitive Indicators and Policy Performance. Port Harcourt: Dominus Printing Company. Licensed under Creative Common Page 25