The Fiscal Policy and Economic Stabilization Nexus: The Nigerian Situation

The aim of this study was to examine fiscal policy performance for the period 1990-2018 with a view to ascertaining if the goal of economic stabilization was achieved. The study used real GDP growth as proxy for economic stabilization; tax revenue, capital expenditure, recurrent expenditure and external debt as proxies for fiscal policy. Inflation rate and exchange rate was introduced as control variables. Stationarity tests were carried out on the variables using the Augmented Dicker Fuller and Phillips-Perron Tests and the Johanson Cointegration Test was employed to ascertain the shortrun and long-run relationship among the cointegrating equations. The OLS estimate was employed to determine the relationship between the dependent and independent variables. It was found that recurrent expenditure, external debts and inflation has a negative impact on economic stabilization in the long-run while capital expenditure, tax revenue and exchange rate has a positive impact on the economy in the long-run. However, in the short-run, capital expenditure and exchange rate had a negative impact on economic stabilization. It is recommended that borrowed funds be used only for the intended productive purposes. There should be strict monitoring of government projects to ensure that every naira spent counts. The fight against corruption must be upheld to restore sanity into the polity and accountability in the use of public funds. There is need to transmogrify the economy into a productive hub, this will reduce the rate of external borrowing, inflationary pressures and enhance effective and beneficial exchange rate policy. Tax policies/regimes should not be such that discourage investments and other productive economic activities.