CHAPTER ONE

INTRODUCTION

1.1.         Background to the Study

The growth and development of the Nigerian economy has not been stable over the years as a result, the country’s economy has witnessed so many shocks and disturbances both internally and externally over the decades. Internally, the unstable investment and consumption patterns as well as the improper implementation of public policies, changes in future expectations and the accelerator are some of the factors responsible for it (Siyan and Adebayo, 2009). Similarly, the external factors identified are wars, revolutions, population growth rates and migration, technological transfer and changes as well as the openness of the country’s economy.

The cyclical fluctuations in the country’s economic activities has led to the periodical increase in the country’s unemployment and inflation rates as well as the external sector disequilibria(Okunrounmu, 2003). In other words, fiscal policy is a major economic stabilisation weapon that involves measure taken to regulate and control the volume, cost and availability as well as direction of money in an economy to achieve some specified macroeconomic policy objective and to counteract undesirable trends in the Nigerian economy (Okunrounmu, 2003). Therefore, they cannot be left to the market forces of demand and supply as well as other instruments of stabilization such as monetary and exchange rate policies among others, are used to counteract are problems identified (Odedokun, 2008). This may include either an increase or a decrease in taxes as well as government expenditures which constitute thebedrock of fiscal policy but in reality, government policy requires a mixture of both fiscal and International Review of Social Sciences and Humanities, monetary policy instruments to stabilize an economy because none of these single instruments can cure all the problems in an economy (Ndiyo and Udah, 2003).