MACROECONOMIC ANALYSIS OF FISCAL POLICY AND SMALL AND MEDIUM-SCALE ENTERPRISES OUTPUT IN NIGERIA

Abstract

Fiscal policies, specifically taxation, affect the output growth of SMEs in most developing countries. This study analysed the impact of taxation on small and medium enterprises output in Nigeria using the Auto Regressive Distributed Lag model econometric technique using the ex-post facto research design. The econometric equation is anchored on the Solow-Swan and Keynesian theories. Secondary data from 1981 to 2022 was collected from The Central Bank of Nigeria, the International Labour Organization, and the World Bank Development Indicators. The unit root test showed that the variables were of mixed order of integration which warranted the use of the Bounds testing approach. Taxation had a positive and significant effect on SME output in the long run, loans and electricity supply were found to be positive and significant drivers of SME output in Nigeria. The study thus recommends that the long run effect of taxation should be considered by government when it has to do with SMEs. Also, efforts to shore-up the dedicated funds in specialized funding bodies like Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) Bank of Industry should be activated to increase loans to SMEs. Third, government should open the electricity generation and distribution sector to private investors to enhance consumption.