The Nigerian fiscal stance and macroeconomic performance: a Computable General Equilibrium (CGE) analysis

Abstract

In recent times, Nigeria has implemented fiscal policy reform in the form of an increase in the Value-Added Tax (VAT) rate and channelled considerable expenditure toward the fiscal stimulus programmes. The objective of this reform is to set the economy back on its growth trajectory. The likely impact of these non-complementary fiscal instruments on macroeconomic variables is yet to be assessed empirically within a consistent macroeconomic framework. Therefore, this paper set out to provide a quantitative ex-post assessment of this policy by utilizing the Computable General Equilibrium approach. Surprisingly, the increase in the VAT rate and spending policy mix scenario is found to be the most desirable policy in terms of improvement in real GDP, consumption and household incomes. Similarly, in terms of sectoral effect, the mix policy scenario is also found to be the most desirable policy in terms of improvement in output performance and employment. Furthermore, the study found that the agriculture and private services sectors have the highest growth potential to be the new engine of growth for the economy. The major conclusion of this paper is that an increase in the VAT rate and spending policy mix results in an overall macroeconomic improvement in Nigeria.