Fiscal Policy

Last updated on
February 17, 2022

Fiscal policy refers to the government measures deployed to influence the economy. These measures include but are not limited to taxes and government spending.

A government can decide to influence the macroeconomic conditions of the entity it governs to respond to a recession by increasing government spending in select sectors of the economy and reducing personal taxes as incentives to increase economic activities and domestic consumption that activates the economy towards recession recovery. These measures concisely explained describe what a fiscal policy is.

Nigerian Context

Nigeria’s fiscal policy is generally dependent and restricted by its oil-dominated revenue. This basically means that since Nigeria depends on its oil & gas assets to draw in revenue, there is little to no effect on the economy when it comes to domestic tax measures as is the same case with government spending when oil revenues start to dwindle - Nigeria is currently grappling with the latter. On behalf of the IMF, Thomas Baunsgaard proposes that because fiscal policy in oil-producing countries is conventionally affected by oil revenue uncertainty and volatility, these oil-producing countries like Nigeria for example should factor in the exhaustibility of their oil & gas resources and try to reduce the oil revenue volatility passed on to the economy - generally by diversifying government’s revenue sources and particularly in Nigeria’s case, by increasing its domestic tax base.

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