EFFECTIVENESS OF FISCAL POLICY ON POVERTY REDUCTION IN NIGERIA: AN EMPIRICAL ANALYSIS

Abstract

The effects of fiscal policy on poverty reduction in any economy cannot be overemphasized. The purpose of this study is to examine empirically the effectiveness of fiscal policy on poverty reduction in Nigeria. An annual time series dataset was generated from Central Bank Statistical Bulletin and World Development Indicators (WDI) for the period 1981 to 2022. The study employed Auto-regressive Distributed Lag Model for the analysis of the parameters. Ex-post facto research design was adopted. The study found out that government capital expenditure ordinarily shows a negative relationship with poverty incidence which shows that there will be a possibility of poverty elimination tendencies as capital expenditure is mainly targeted on developing infrastructures and some projects that help in production that improve living standards hence encourage investment in the long run. The government recurrent expenditure also has a negative influence with poverty incidence, as expenditure is mainly targeted on general administration such as salary and other allowances. Total Oil tax revenue also have negative influence with poverty incidence, other non-oil tax revenue has a negative influence but significantly related with poverty incidence. As such, policies towards these variables can be used to eliminate poverty, as they have negative relationship with poverty incidence. Thus, an increment in them would essentially cause a reduction in the poverty incidence. The study recommends that government should include revenue yielding forms as grants, royalties, return on government investments, licensing fees etc. which have the effect of reducing poverty incidence if effectively invested in the economy.