Fiscal policy and the dynamics of environmental quality in Nigeria

Abstract

Background: Fiscal policy in terms of governments’ regulation of environmental activities through spending and tax plays a significant role in the quality of the environment. Experience has shown that various emissions arise from various sectors including manufacturing, industry, construction, and transportation which need some degree of regulation through governments’ spending and taxation in order to reduce the extent of damage these emissions impose on Nigeria ecosystem.  

Objective: This paper evaluates the link between fiscal policy and environmental quality in Nigeria. The main objective was to examine the effects of fiscal policy tools including revenue generation and tax levied. Growing activities of the economy are also included as a factor that can regulate pollution in the environment. Also, a comparison was made to determine the response of each sectors’ emission to regulatory tools.    

Methodology: The theoretical model was adapted from individual preferences which are dependent upon consumption and environmental quality. Secondary data were collected from 1980-2016 on carbon-dioxide emission from various sectors of manufacturing, industry, construction, and transportation from the World Development Indicators. In the same vein, internal revenue generation and value added tax and growth data were collected. The methodology was based on the robust least square estimation due to insensitivity to violation of assumptions. 

Results: The study finds out that the scale effect is identified with transport emission; composition effect with manufacturing, industry, and construction emissions; while the technique effect is partly identified by electricity and heat production and transport emissions.

Unique contribution: The paper contributes through comparison of response of various emissions from each sector to regulatory tools, and this is relatively scarce in economic literature. Also, disaggregation into the various sectors according to their relative pollution was reported.

Conclusion: Environmental pollution through emissions of various kinds need serious policy attention. The global warming symbols are threatening and known to emanate from the activities in the industry, manufacturing, and other human activities.

Key recommendation: Regulations from fiscal policy should ensure minimization of pollution which again needs to be complemented by public enlightenment on the dangers of pollution and environmental degradation.