Fiscal policy and poverty alleviation : some policy options for Nigeria

Abstract

The rise in fiscal policy as a tool of macroeconomic management and the pervasive and widespread inequality in terms of income disparity has renewed interest in the use of fiscal policy in the alleviation of poverty and the reduction of income disparity. This study sets out to examine the potency of fiscal policy as a tool for poverty alleviation. The study uses a static real-side computable general equilibrium model as the framework. Three counterfactual scenarios were examined. These are transfers to the poor household, targeting of government expenditure and import tariff adjustment. The study observed that targeting of government expenditure seems to be the most potent tool for effective poverty reduction. Moreover, tariff adjustment tends to aggravate income disparity/ poverty amongst households. In this light, the study proposes that in the quest for poverty reduction in Nigeria, fiscal policy should be designed so that government expenditure is properly focused to ensure that goods required by poor households are provided through public means.