No RP_067, Research Papers from African Economic Research Consortium
Abstract: Given the negative impact of persistent unsustainable fiscal deficits on the Nigerianeconomy, there is now a consensus among interested parties on the need to address the problem effectively. The literature suggests theree approaches for this purpose: increasein revenue, reduction in expenditure, or a continuation of both. An appraisal of the budgetary process in Nigeria shows that annual expenditure proposals are always anchored on projected revenue, thus the accuracy of revenue projection is a necessary condition for devising an appropriate framework for fiscal deficit management in Nigeria. This study, therefore, evaluates the productivity of the tax system for the period 1970- 1999 to devise a reasonably accurate estimation of Nigeria's sustainable revenue profile. This will assist in the design of an appropriate expenditure profile as a means of averting the persistent unsustainable fiscal deficit in the country. Overall, the study reports a satisfactory level of productivity of the tax system. Although the advent of the oil boom,encouraged some laxity in the management of non-oil revenue sources, this was rectified to a reasonable extent with the commencement of the structural adjustment programme. The study concludes that the current revenue profile is sustainable, with little prospectfor significant improvement in the short run. It also suggests that a significant reduction in public expenditure and prudent management of financial resources are the most feasible solutions to the problem of unsustainable fiscal deficit in Nigeria. Finally, the report underscores the urgent need for the improvement of the tax information system to enhance the evaluation of the performance of the Nigerian tax system and facilitate adequate macroeconomic planning and implementation.
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