UNIVERSITY OF JOS

FACULTY OF SOCIAL SCIENCE

ECO 322
INTERMEDIATE MACROECONOMICS
PRESENTATION
GROUP SIX - (6)

 Explore the main objectives of fiscal policy

 analyze how governments use fiscal tools to achieve these objectives

18th April,2024.

GROUP SIX STUDENTS

 S/N NAMES MATRIC NUMBER

1. ANAUKWU PASCAL UJ/2019/ED/1113

2. GODSAVE FREEDOM RINDOM UJ/2019/ED/0654

3. OKAFOR SUNDAY GODWIN UJ/2019/ED/0165

4. MONDAY JUDITH IJEOMA UJ/2019/SS/0799

5. DOMBEN DOBORATH BOT UJ/2019/SS/0755

6. MACHEN FUTHAI DANIEL UJ/2019/SS/0755

7. DORCAS NENROTMWA CHIKAK UJ/2019/SS/0152

8. SHALLMIZHILLI ASHILTI VALDA JOHNSON UJ/2018/SS/0134

9. OBINNA HENRY ONYEAGBA UJ/2019/SS/0177

10. MARKUS HAPPY GOBUM UJ/2019/ED/0064

11. DANIEL SAMSON DATONG UJ/2019/SS/0340

12. LUKA BULLAH JASON UJ/2020/ED/1433

13. DAPUS YOHANNA DANLADI UJ/2017/ED/0282

14. ADEDIRAN DAVID JOHN UJ/2019/SS/0856

15. JAMES NWACHUKWU CHARLES UJ/2019/SS/0603

16. PAM FAVOUR KANGYANG UJ/2019/SS/0947

17. PIWUNA NENRIT EMMANELLA UJ/2019/SS/0533

18.

Introduction
 Fiscal policy is a critical tool that governments use to manage the economy
and achieve various objectives. By manipulating government spending, taxation,
and borrowing, policymakers can influence economic growth, employment levels,
inflation rates, and income distribution within a country. In this presentation, we
will explore the main objectives of fiscal policy in detail and analyze how
governments utilize fiscal tools to achieve these objectives effectively.

In economics and political science, fiscal policy is the use of government

revenue collection (taxes or tax cuts) and expenditure to influence a country's
economy. The use of government revenue expenditures to influence
macroeconomic variables developed in reaction to the Great Depression of the
1930s, when the previous laissez-faire approach to economic management
became unworkable. Fiscal policy is based on the theories of the British
economist John Maynard Keynes, whose Keynesian economics theorized that
government changes in the levels of taxation and government spending influence
aggregate demand and the level of economic activity. Fiscal and monetary policy
are the key strategies used by a country's government and central bank to
advance its economic objectives. The combination of these policies enables these
authorities to target inflation and to increase employment. In modern economies,
inflation is conventionally considered "healthy" in the range of 2%–3%.
Additionally, it is designed to try to keep GDP growth at 2%–3% percent and the
unemployment rate near the natural unemployment rate of 4%–5%. This implies
that fiscal policy is used to stabilize the economy over the course of the business
cycle.

A fiscal deficit is often funded by issuing bonds such as Treasury bills or and
gilt-edged securities but can also be funded by issuing equity. Bonds pay interest,
either for a fixed period or indefinitely that is funded by taxpayers as a whole.
Equity offers returns on investment (interest) that can only be realized in
discharging a future tax liability by an individual taxpayer. If available government
revenue is insufficient to support the interest payments on bonds, a nation may
default on its debts, usually to foreign creditors. Public debt or borrowing refers
to the government borrowing from the public. It is impossible for a government
to "default" on its equity since the total returns available to all investors
(taxpayers) are limited at any point by the total current year tax liability of all
investors.

MAIN OBJECTIVES OF FISCAL POLICY

1. Promoting Economic Growth

One of the central goals of fiscal policy is to stimulate economic growth and
enhance overall productivity. Through strategic investments in infrastructure
projects, education, healthcare, and technology, governments can create an
enabling environment for businesses to thrive and expand. Increased government
spending can boost aggregate demand, create jobs, and spur private sector
investments, leading to sustained economic growth over time.

Example in Nigeria: Investment in critical infrastructure projects such as

road construction, power generation, and transportation systems to stimulate
economic growth and enhance productivity.

2. Reducing Unemployment

Another key objective of fiscal policy is to mitigate unemployment and create

a more inclusive workforce. Governments can implement policies that directly
address unemployment, such as job training programs, public works projects, and
subsidies for hiring new employees. By boosting consumer spending through tax
cuts and increased social welfare programs, fiscal policy can contribute to lower
unemployment rates and improve economic stability.
 Example in Nigeria: Implementation of job training programs and youth
empowerment initiatives to create employment opportunities and address the
issue of high youth unemployment in the country.

3. Controlling Inflation

Maintaining price stability and controlling inflation is crucial for sustainable

economic growth. Fiscal policy plays a significant role in managing inflation by
adjusting government spending and taxation levels. During periods of high
inflation, governments may increase taxes or reduce spending to curb excessive
demand in the economy. Conversely, during economic downturns, fiscal stimulus
measures, such as tax cuts and increased public expenditure, can help to prevent
deflation and support growth.

Example in Nigeria: Adjustment of government spending and taxation levels

to manage inflationary pressures and ensure price stability in the face of
fluctuating economic conditions.

4. Achieving Income Distribution

Income distribution is a key aspect of social welfare and economic equity.

Fiscal policy can be used to address income inequality by implementing
progressive taxation systems, social welfare programs, and targeted subsidies. By
redistributing wealth and providing support to disadvantaged individuals and
communities, governments can create a more equitable society and promote
social cohesion.For example, the introduction of targeted cash transfer programs
aims to support vulnerable populations and reduce income disparities within
society.

Example in Nigeria: Introduction of targeted cash transfer programs to

support vulnerable populations and reduce income disparities within society,
promoting social equity and cohesion.
5. Stabilizing the Economy

One of the primary goals of fiscal policy is to stabilize the economy by

managing aggregate demand. During times of economic downturns,
governments may increase spending or reduce taxes to stimulate demand and
boost economic activity. Conversely, during periods of high inflation or
economic overheating, governments may decrease spending or raise taxes to
cool down the economy. Governments aim to maintain stable and sustainable
economic growth rates to prevent recession or overheating. During economic
downturns, fiscal policy can stimulate demand through increased government
spending or tax cuts. Conversely, during periods of high inflation or economic
overheating, fiscal policy can be used to reduce demand through decreased
spending or increased taxes.

HOW GOVERNMENT USES FISCAL TOOLS TO ACHIEVE OBJECTIVES

a. Government Spending

Governments employ various strategies to utilize government spending

effectively in pursuit of fiscal policy objectives. By prioritizing investments in key
sectors such as infrastructure, education, healthcare, and research, policymakers
can stimulate economic activity, create jobs, and enhance long-term growth
prospects. Timely and targeted government spending can address market failures,
boost consumer confidence, and catalyze private sector participation.

Example in Nigeria: Prioritizing investments in infrastructure projects such as

road construction, rail networks, and power generation to boost economic
activity, create employment opportunities, and enhance long-term growth
prospects in the country.
b. Taxation

Taxation is a core component of fiscal policy that enables governments to

generate revenue, redistribute income, and regulate economic behavior. Through
progressive taxation systems, governments can ensure that higher-income
individuals contribute proportionally more to public finances, promoting income
equality. Tax policies, such as tax credits, deductions, and incentives, can be
leveraged to stimulate consumption, savings, and investment, influencing the
overall economic landscape.

Example in Nigeria: Implementation of progressive tax policies that tax

higher-income individuals at a higher rate to promote income equality and
generate revenue for public expenditures. Tax incentives are also provided to
encourage investment in key sectors like agriculture, manufacturing, and
technology, stimulating growth and development in these areas. In Nigeria,
taxation plays a pivotal role in revenue generation and income redistribution
efforts. The government has implemented progressive tax policies that tax higher-
income individuals at a higher rate to promote fairness and equality. Additionally,
tax incentives are provided to prioritize key sectors such as agriculture,
manufacturing, and technology, stimulating growth and investment in these
areas.

c. Borrowing

Borrowing is a common practice for governments to finance budget deficits

and fund essential public projects. By issuing government securities and bonds,
governments can access capital markets to bridge fiscal gaps and support
economic initiatives. While borrowing can provide short-term liquidity and
flexibility, prudent debt management is essential to prevent excessive
indebtedness and maintain fiscal sustainability in the long run.

The Nigerian government often relies on borrowing to finance budget

deficits and strategic initiatives. Through sovereign bonds and other debt
instruments, the government raises funds for critical infrastructure projects and
social programs. However, prudent debt management practices are essential to
ensure sustainability and prevent excessive borrowing that could strain the
economy in the long term. Example in Nigeria: Utilizing borrowing through issuing
government securities and bonds to finance budget deficits and fund essential
public projects, such as healthcare infrastructure and education programs.
Prudent debt management practices are essential to ensure fiscal sustainability
and prevent an unsustainable debt burden on the economy in the long term.

3.TAX AMNESTY PROGRAMS

Tax amnesty programs have been introduced by the Nigerian government to

encourage voluntary tax compliance and broaden the tax base. These programs
offer incentives for taxpayers to regularize their tax affairs, declare previously
undisclosed income, and settle outstanding tax liabilities. Tax amnesty initiatives
aim to boost tax revenues and enhance tax compliance.

4. PUBLIC DEBT MANAGEMENT

Fiscal policies related to public debt management have been crucial for
Nigeria to maintain fiscal stability and sustainability. The government has
implemented strategies to improve debt transparency, restructure debt
obligations, and refinance existing debt at favorable terms. Efficient debt
management practices help mitigate risks associated with high levels of public
debt.

6. SOCIAL SPECIFIC INCENTIVES

The Nigerian government has implemented fiscal policies that offer sector-
specific incentives to promote growth and investment in key industries. For
example, tax holidays, duty exemptions, and investment allowances are provided
to encourage investments in sectors such as agriculture, manufacturing, and
renewable energy. These incentives aim to attract foreign direct investment and
stimulate economic diversification.

7. SOCIAL INVESTMENT PROGRAM

Fiscal policies in Nigeria include social investment programs aimed at

addressing poverty, unemployment, and social welfare challenges. Initiatives such
as the National Social Investment Program (NSIP) are designed to provide
financial assistance, skills training, and healthcare services to vulnerable
populations. These programs help improve social outcomes, reduce inequality,
and enhance the quality of life for citizens.

These examples illustrate the diverse range of fiscal policies that have been
implemented in Nigeria to address various economic and social challenges. By
leveraging fiscal tools effectively, the Nigerian government can strengthen its
fiscal position, promote economic growth, and enhance the overall well-being of
its citizens.

Examples of fiscal policies that have been implemented in Nigeria

i. Value Added Tax (VAT) Rate Adjustments

The Nigerian government has made changes to the VAT rate as part of fiscal
policy adjustments. In 2020, the VAT rate was increased from 5% to 7.5% to boost
government revenue and support social programs. This increase in VAT rate
aimed to diversify revenue sources and improve fiscal sustainability.

ii. Fuel Subsidy Removal

The Nigerian government has implemented fiscal policies to gradually

remove fuel subsidies, which have been a significant fiscal burden on the country.
Subsidy removal is aimed at reducing government expenditure, encouraging
market efficiency, and redirecting resources to critical sectors such as healthcare,
education, and infrastructure.
CONCLUSION

In conclusion, fiscal policy serves as a versatile instrument for gov

ernments to steer economic dynamics, address social challenges, and a

chieve sustainable development goals. By aligning fiscal tools with spec

ific objectives such as economic growth, employment generation, inflat

ion control, and income redistribution, policymakers can effectively nav

igate economic cycles and shape the future direction of their countries.

A nuanced understanding of the main objectives of fiscal policy and the

strategic utilization of government spending, taxation, and borrowing a

re essential for fostering resilient and inclusive economies that benefit a

ll stakeholders. fiscal policy is a powerful tool that governments use to

achieve various economic objectives such as stabilizing the economy, p

romoting growth, redistributing income, and maintaining price stability

through tools like taxation, government spending, budget management

and debt control.

Overall, fiscal policy is a powerful tool for governments to achieve

macroeconomic objectives and promote overall economic stability and

welfare. However, effective implementation requires careful considerati

on of economic conditions, political constraints, and long-term sustain

ability.
REFERENCES

1. Kramer, Leslie. "What Is Fiscal Policy?". Investopedia. Dotdash. Retrieved Apr

il 26, 2019.

2. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in Action.

Upper Saddle River, New Jersey: Pearson Prentice Hall. p. 387. ISBN 978-0-13-

063085-8.

3. Pettinger, Tejvan. "Difference between monetary and fiscal policy". Economi

cs.Help.org. Economics.Help.org. Retrieved April 26, 2019.