ABSTRACT
Poverty has been a phenomenon that has tormented many nations of the world, Nigeria included. Many of its citizens have been unable to provide themselves with their basic needs such as food, a suitable edifice, a sound level of education, and adequate healthcare services. Some say income inequality is a cause of the prevailing poverty in Nigeria, a case where the affluent continue to enrich themselves, and the poor remain tied down by their unfortunate circumstances. Over the years, the Nigerian government has used fiscal policy as a means of correcting the problem of income inequality by varying its expenditures (capital and recurrent) and taxes levied on its citizens to reduce the high level of poverty prevalent in Nigeria. This paper seeks to find out the level of impact fiscal policy has on poverty reduction in Nigeria from 1980 to 2018, using Impulse Response Function and Variance Decomposition on a Vector Auto Regression Model. After analyzing the data, it was discovered that government capital expenditure impacts more on the economy than recurrent expenditure with regards to poverty reduction, hence policies that advocate for increases in expenditure for capital development projects and social infrastructure be put in place to bring about a substantial decrease in the poverty level prevalent in Nigeria. It was also discovered that government tax revenue had an insignificant impact on poverty reduction. This can be traced to the high level of corrupt practices surrounding the collection of tax revenue, which has greatly hindered the implementation of development plans. Hence, taxes should be levied properly and remitted timeously so as to avoid the misappropriation of funds.
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