Impact Of Fiscal Policy On Employment Generation
(A Case Study of Bayelsa State From The Period 2000-2018)
Fiscal policy, a government’s strategy in managing its revenue and expenditure, plays a crucial role in shaping economic dynamics and, more specifically, in influencing employment generation. By manipulating taxation and spending, governments aim to achieve macroeconomic objectives, and one key aspect is job creation. Implementing expansionary fiscal policies, such as tax cuts or increased public spending on infrastructure projects, stimulates economic activities, fostering business growth and job opportunities. Conversely, contractionary fiscal measures, like tax hikes or reduced government spending, may impede job creation as economic activities contract. The impact of fiscal policy on employment generation hinges on its ability to bolster consumer and business confidence, encourage investment, and enhance overall economic vitality. In essence, a well-crafted fiscal policy can be a potent tool for addressing unemployment challenges and promoting sustainable economic development.
The study examines the impact of fiscal policy on employment generation in Bayelsa State from the period 2000-2018 using a quarterly time series data. Two research hypotheses were formulated to guide this study. The Augmented Dickey Fuller using Akeike criterion was used to test for unit root, Johansen co-integration was used to obtain the order or stationary among variables, ARDL approach techniques was use to investigate the linkage of these variables. The co-integration test confirms that there is a long run relationship between employment generation and the variables of interest. The estimated result shows that there is a significant relationship between taxation and government capital expenditure in Bayelsa State during the period of study. Also the result shows that there is no significant relationship between government capital expenditure and employment generation in Bayelsa State. It was therefore recommended that there should be increased spending on agriculture, particularly regarding capital expenditure for the sector towards enhancing employment generation in Bayelsa State; there should be increased spending on education, particularly in the aspect of capital expenditure for the sector so as to enhance rate of employment in the state.
Title page
Certification
Dedication
Acknowledgement
Dedication
Table of Contents
Abstract
CHAPTER ONE:
INTRODUCTION
1.1 Background to the study
1.2 Statement of the Problem
1.3 Objective to the Study
1.4 Research Hypotheses
1.5 Significance of Study
1.6 Method of Data Analysis
1.7 Scope and Limitation of the Study
1.8 Organization of the study
CHAPTER TWO:
LITERATURE REVIEW
2.1 Introduction
2.2 Theoretical Literature Review
2.2.1 Keynes Theory of Fiscal Policy
2.2.2 Other Related Theories of Fiscal Policy
2.2.2.1 Adolph Wagner’s Law of Increasing State Activity
2.2.2.2 The Peacock-Wiseman Hypothesis
2.2.2.3 Musgrave and Rostow’s Development Model
2.2.2.4 Critical-Limit Hypothesis
2.3 Empirical Review of Literature
2.4 Fiscal Policy and National Economy
2.5 Taxation and Government Expenditure in Bayelsa State
2.5 Summary of the Review
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1 Introduction
3.2 Theoretical Framework
3.3 Research Design
3.2 Methods of Data Collection
3.3 Measurement of Variables and Model Specification
3.4 Method of Data Analysis
CHAPTER FOUR:
DATA PRESENTATION AND INTERPRETATION
4.1 Results
4.1.1 Graphical Representations
4.1.2 Descriptive Statistics
4.1.3 Short Run Result
4.1.4 Unit Root Test
4.1.5 Johansen Cointegration Test
4.1.6 The ARDL Model for Employment Generation Rate
4.2 Hypothesis Testing
4.3 Diagnostic Test
4.3.1.1 Heteroskedasticity Test: Harvey
4.3.2 Stability Test
4.3 Discussion of Findings
CHAPTER FIVE:
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
5.2 Summary
5.3 Conclusion
5.4 Policy Recommendations
REFERENCE
APPENDIXES
INTRODUCTION
1.1 Background to the Study
Employment of available human resources is germane to economic growth and development of any country. The quest to generate employment opportunities for abundant human resources which keeps on growing yearly always preoccupies the attention of policy makers in various economies around the world. This is normally reflected in their policy thrusts, with the fundamental intent of evolving enabling environment towards creation of jobs.
Employment is generated when job opportunities are provided by the government through government expenditure 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 (Jhinghan, 2008).
Indeed scarcity of employment opportunities, which gives rise to unemployment problem, is not only peculiar to the less developed countries but also advanced economies (Jhingan, 2008). Nevertheless, this macroeconomic problem is more acute in poor economies such as Nigeria and other African countries. Lack of employment opportunities aggravates unemployment situation in which some employable persons, in the labour force, with requisite qualifications, skills and ability are willing and seeking to work but cannot get jobs (Adawo, Essien and Ekpo, 2012). In related terms, deficiency in employment opportunities (Jhingan, 2008) leads to involuntary idleness of persons who are willing to work at the prevailing wage rate but unable to find work. The level of employment (Mankiw, 1994; Philip, 2014) measures the proportion of the available labour force that is employed in the economy.
The unemployment rates in the country have been rising over the years thus resulting in declining level of employment. For over a period of about one decade, for instance, the rise in unemployment rate does not abate as these figures portray: 12.2% in 2005; 12% in 2006; 13% in 2007; 15% in 2008; 19% in 2009; 22% in 2010; and 24.6% in 2011, 23.9% in 2012, 29.5 in 2013 (NBS, 2013; CBN, 2013; World Bank, 2013). This high unemployment situation in Nigeria gives rise to some socio-economic problems for such as economic instability (Bamidiro, 2003).
The pattern of government expenditure in Nigeria has been on consistent increase over the years (Aregbeyen and Akpan, 2013). The National Bureau of Statistics (2014) provides that the decreasing rate of employment in the country is due to factors such as: increased number of school graduates with no matching job opportunities; a freeze on employment in many public and private sector institutions; and mismanagement of capital budget by the government. Thus given the persistent decreasing rate of employment in the country (Kemi and Dayo, 2014), ameliorative measures such as improving fiscal discipline in government finances and implementing appropriate measures to attract foreign direct investment, among others, are considered imperative towards turing the tide.
In view of the prevailing economic situation in Bayelsa State and Nigeria at large that gave rise to persistent high unemployment, high inflation, poor living standard among others in spite of ever existing fiscal policy, it is our intention to empirically examine the impact of fiscal policy on employment generation in Bayelsa State with a view to come up with suitable solutions to this reoccurring problems.
1.2 Statement of the Problem
Keynes (1980) perception with respect to fiscal policy as essential for tackling real economic problem seems not strictly adhered to by the government. His principle objectives centred on employment creation for all and sundry because of the effect it has in reviving a depressed economy. During the period of favourable oil prices, the Nigeria leaders ignored the intuition of diversification and effective investment in the country that is capable of giving jobs to the unemployed. But at present many scholars have abandoned this noble issue. Just as Tcherneva (2011) posits that modern fiscal policy focuses attention more on income stability, consumption and investment while employment is left to become the outcome of the aspired modern policy. Undoubtedly, Keynes expected immediate and speedy solution to unemployment problems through direct job creation.
Agu et al (2015) point that fiscal indiscipline coupled with unco-ordination of fiscal policy among the various tiers of the government cum weak revenue obtained from high-marginal tax rate that has narrow tax base led to low tax compliance.
Although there have been numerous studies on fiscal policy as it relates to economic growth, much attention has not been given to its effect on employment generation despite its importance in theory and practice. In the Nigerian case, although studies such as Momodu and Ogbole (2014) and Obayori (2016) attempted to examine the effect of fiscal policy on unemployment, they failed to incorporate the two instruments of fiscal policy in their analysis; they only included public expenditure and left out revenue (an important component of fiscal policy). In the same vein, not much has been done in empirical studies to capture the effect of fiscal policy shocks on employment generation in Bayelsa State. The study aims to fill these gaps.
The motivation behind the study stems from the fact that at a time when the Nigerian economy is faced with recession coupled with growing unemployment, a search for solution via fiscal policy in line with the Keynesian thought becomes a source of interest. It is in light of the foregoing that the study investigates the effectiveness of fiscal policy and employment generation in Bayelsa State with a view to contributing to the existing literature and also to proffer policy recommendations to the economic challenges at hand.
1.3 Objectives of the Study
This study’s broad objective is to examine the impact of fiscal policy on employment generation in Bayelsa State. The specific objectives include;
i. To determine the effect of taxation on employment generation in Bayelsa State.
ii. To examine the impact of government expenditure on employment generation in Bayelsa State.
iii. To make recommendation in how fiscal policy can enhance employment.
1.4 Research Hypotheses
The study sought to achieve the following objectives;
i. There is no significant relationship between taxation and employment generation in Bayelsa State.
ii. There is no significant relationship between government expenditure and employment generation in Bayelsa State.
1.5 Significance of the Study
The significance of this is obviously inevitable and cannot be overemphasized. The findings of this study will be useful in helping the government, especially at the Federal and State level to embark on reforms on fiscal policy in different parts of the country.
The uniqueness of this study is that the outcome will assist in re-designing fiscal policy in Nigeria in such a way to improve the activity that can lead to the increased employment of teeming unemployed youths and other resources. Specifically, the study will help by suggesting ways/the need to change the tax system for the purpose of employment generation and federal government capital expenditure in Nigeria with a view to diversify the economy, reduce the existing high inflation rate and also raising the living standard.
1.6 Method of Data Analysis
This study which tends to investigate the effect of fiscal policy on employment generation in Bayelsa State was analyzed using the econometric method of data analysis. A linear regression model was developed which was used to estimate the variables (dependent and independent) related to this study.
1.7 Scope and limitation of the Study
The study is an empirical investigation which will be conducted in Bayelsa State, Nigeria. Review of literature was reviewed gotten from topics and sources with no geographical boundaries, selected cases might come from other field of work or institutions. This work is however limited to Bayelsa State because of the nature of the study which only aims at the Bayelsa State environment. In addition, time constraints serve as limitation to the study. Several factors were observed as constraints to this study, some of such factors are finance and time constraints.
1.8 Organization of the Study
The study is structured into five chapters. Chapter one introduces the study with section such as background of the study, statement of the problem, research questions, research objectives, scope of the study, significance of the study and organization of the study.
Chapter two presents the literature review, by reviewing renowned authors published and unpublished works on fiscal policy on employment generation.
Chapter three provides the research methodology used in carrying out the study.
Chapter four presents the data analysis, interpretation and discussion of findings.
Chapter five entails the summary of findings, conclusion and recommendation.
SHARE PROJECT MATERIALS ON:
Impact Of Fiscal Policy On Employment Generation:
Fiscal policy refers to the use of government spending and taxation to influence the economy. It can have a significant impact on employment generation, both directly and indirectly. Here are some ways in which fiscal policy can affect employment:
- Government Spending on Infrastructure: When the government increases spending on infrastructure projects such as roads, bridges, airports, and public transportation, it creates jobs directly in construction and related industries. These projects also stimulate economic activity, leading to increased demand for goods and services, which can, in turn, lead to job creation in various sectors.
- Public Sector Employment: Fiscal policy can also influence public sector employment. When the government decides to hire more workers, it directly contributes to employment growth. This is often seen during economic downturns when governments may increase hiring to provide public services and support economic stability.
- Taxation Policies: Tax cuts or tax incentives for businesses can encourage investment and expansion. When businesses have more money to invest in their operations, they may hire more workers. Additionally, tax credits for hiring specific groups of people, such as veterans or the long-term unemployed, can directly target employment generation.
- Consumer Spending: Fiscal policies that put more money in the hands of consumers, such as tax rebates or direct payments, can stimulate demand for goods and services. When businesses see increased demand, they may need to hire more workers to meet that demand, thus boosting employment.
- Automatic Stabilizers: Certain aspects of fiscal policy, such as unemployment benefits and food assistance programs, provide a safety net during economic downturns. These programs help maintain consumer spending and can reduce the severity of recessions by preventing a sharp drop in employment.
- Government Incentives for Job Training and Education: Fiscal policies can also include investments in education and job training programs. When people acquire new skills and qualifications, they become more employable, which can reduce unemployment rates.
- Deficit Spending: In times of economic recession, governments may engage in deficit spending by running budget deficits. This means they are spending more money than they are collecting in taxes. This can be a deliberate policy choice to stimulate economic activity and create jobs during periods of economic weakness.
It’s important to note that the effectiveness of fiscal policy in generating employment can vary depending on the specific circumstances of the economy, the timing of policy actions, and the design of the policies themselves. Additionally, fiscal policy should be coordinated with monetary policy (controlled by central banks) to ensure a balanced and effective approach to economic management.
Ultimately, the impact of fiscal policy on employment generation is a complex and multifaceted issue, but it can be a powerful tool for governments to address unemployment and stimulate economic growth when used appropriately.