International Journal of Research in Social Sciences
Year : 2019, Volume : 9, Issue : 7
First page : ( 13) Last page : ( 25)
Online ISSN : 2249-2496.

Fiscal policy and manufacturing sector output: The nigerian evidence

Uffie Edison James, Aghanenu Augustine Sunday

Online published on 7 October, 2019.

Abstract

This work investigated the effect fiscal variables-Total Government Expenditure and Company Income Tax) on manufacturing sector output in Nigeria. It utilized time-series data extracted from various sources spanning the period of 1981 to 2016. It employed the Augmented Dickey-Fuller unit root test for stationarity cum the Autoregressive Distributed Lag (ARDL) Bounds test approach to Cointegration. Stability of the model was also diagnosed using CUSUM and CUSUMSQ. The ADF unit root result showed that manufacturing output was integrated of order I(1) while government expenditure and tax on company income were integrated of order zero I(0). The ARDL approach to bound test exhibited long run equilibrium relationship among the variables. The study found that both short-run and long-run impacts of the regressors are quite significant on the target variable. It established that government expenditure upwardly drove manufacturing output which can be underscored by increased government expenditure on capital infrastructure while company income tax dampened output owing to multiplicity of taxes. The Error Correction Model showed that disequilibrium in the short-run are adjusted for each period in the long-run. Also, the CUSUM test showed that the model was stable while CUSUMSQ test somewhat exhibited instability in the residual variance. Based on the findings, the study suggests that government expenditure on capital infrastructures should be encouraged to further enhance the sector's productive and utilisation capacity and the need for tax-cut on company income to motivate both actual and potential investors.

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Keywords

Manufacturing output, Fiscal Variables, Bounds testing, ECM, Stability testing.

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