ECO 206 Assignments 
Name: Duru Ronald Chidera
Matric no: 18/sms01/011
Department: Economics 

(1)  Public expenditure will continue to grow. Discuss. 
            The amount of money a government spends each year on public goods and related activities ranges from a few million dollars to hundreds of millions and even billions of dollars, depending on the size of the government. Historically, government expenditures have been growing consistently over the years, especially at the federal level, raising some serious concerns in recent years. While the growth trend remains a concern, government expenditures serve a number of vitally important purposes. In addition to dealing the market inefficiencies, such as those discussed earlier, government expenditures are necessary to stabilize the economy, to maintain a strong national defense, to provide public goods, and to deal with specific needs of society such as redistribute income that a free market system will not or cannot address on its own. However, government expenditures cannot grow without limits since no economy can sustain an uncontrolled growth and, if not carefully monitored, will have serious economic, social, and political consequences. 
          Nigeria; The federal government allocate huge amount of money for the provision and maintenance of basic infrastructure like roads, schools, hospital etc. Travelling through Odukpani Calabar - Itu road in Cross River State, Nigeria you will discover that this road which is a trunk A road is a dead trap, most often people spend a whole day for a journey of not more than 1 hour, 30 minutes because of falling trucks due to extremely bad and narrow roads. Nigerian government spend huge amount of money on the development of social overheads, economic services and for the creation infrastructures for economic growth and most times, these funds are mismanaged, misappropriated, misplaced or even wasted, thus resulting in failed and incomplete execution of government projects. Throughout the years form 1980 till date government expenditure has continued to rise marginally on annual basis, yet no commensurate improvement on the economy.
Unfortunately, rising government expenditure has not translated to meaningful growth and development as Nigeria ranks among the poorest countries of the world. In addition, many Nigerians have continued to wallow in abject poverty. The business day Newspaper of Tuesday 14 February, 2012, reported that the percentage of Nigerian living in abject poverty rose to 60.9% in 2012 as compared to 54.7% in 2004. Dilapidated infrastructure (especially roads and power supply) even when funds are allocated. The public expenditure will continue to grow due to, 
	⁃	Inflation: With the rising prices, the government has to keep on increasing public expenditure to carry out its functions and maintain the supply of public goods intact. During inflation, the government has to pay additional DA to its employees which obviously call for an extra burden on public expenditure.
	⁃	The population effect: A high growth of population naturally calls for increase in the expenses as all State functions are to be performed more extensively. Rising population also poses various problems in poor countries. The State will have the added responsibility of solving such problems as food, unemployment, housing and sanitation. Further, overpopulated countries like India will have to check the population growth. The State has, therefore, to spend more and more on family planning campaigns every year.
	⁃	Resource mobilization and ability to finance: When the government innovates more and more methods of taxation and resource mobilisation, its ability to finance public expenditure increases and the size of public expenditure grows. Public sector outlays could be increased by more taxation yields, public debt, foreign aid and deficit financing.
	⁃	The Rural effect: In an underdeveloped country, the government has also to spend more and more for rural development. It has to undertake schemes like community development projects and other social measures.
	⁃	Effects of war and need for defense: The tremendous growth in public expenditure may also be attributed to wars and threats of war in modern times. In the Second World War, countries like England incurred heavy war expenditures, amounting to £ 15 million per day. Wars and threats of war and the consequent defence needs compel governments to spend more and more on the production of war goods.
	⁃	The Urbanization effect: The spread of urbanisation is an important factor leading to the relative growth of public expenditure in modern times. With the growth of urban areas, there has been an increasing tendency of expenditure on civil administration. Expenses on water supply, electricity, provision of transport, maintenance of roads, schools and colleges, traffic controls, public health, parks and libraries, playgrounds, etc. have increased enormously these days. Likewise, the expenditure on courts, prisons etc. is increasing, especially in the urban sector.

(a) Explain the various canons of public expenditure with appropriate scenarios
(i) Benefit : The principle of social benefit, as canons of public expenditure, means that the Government should plan it’s expenditure in a way that it would be beneficial to the majority of the citizens of a state. Public expenditure refers to expenses Incurred by public authorities central, state and local on its various activities. Thus marginal social benefit > marginal total cost. For example, for a government to put street light in place it should be favorable to the majority of the citizens in that place, for instance in Osun there a some undeveloped places without street light, street light is needed so the people there would be able to see at night and to also prevent theft. 
(ii) Economy: The State should spend money in such a way that might develop the productive capacity of the community as much as possible. This is to yield enough revenue to enable the government to yield more welfare to the citizens. For instance, the government should invest on agriculture so that it would help in the growth of the economy.
(iii) Equality: According to this canon, public expenditure should be incurred in such a way that the glaring inequalities in the distribution of income and Wealth are minimized. The expenditure pattern of the govern­ment should be so designed to benefit the poorer sections of the community. Expenditure programmes should be ordained to provide more educational facilities, medical benefits, cheap housing facili­ties, old age pension and other social security measures to the vulnerable sections of the community. For achieving this canon, public expenditure should be planned according to specific programmes and prioritized as per the availability of funds. For example, the federal government of Nigeria should allocate funds to the poorer section of the country, in order to improve their standard of living and also make the get the benefits citizens of the country through giving them good roads, street lights etc. 
(iv) Sanction: This means that before the government spend it must obtain a proper sanction or approval of the content. Without the approval the government cannot incur any expenditure. A budget that have not been signed into law should not be touched. For instance in Nigeria a budget is passed through stages before it is approved and can be touched. Without it’s approval by the president the Nigerian budget can’t be touched by the government.

(b) Why do government borrow? Looking at the economic conditions of Nigeria State would you advise borrowing? Justify your answer
   Government borrow because; 
(i) Investment. The government may invest in public sector investment. For example, building schools, hospitals, better roads. This investment can give a return on the investment which helps to boost productive capacity and increase economic growth.  In this case, the government is acting like a firm who takes out a loan to finance investment.
(ii) Automatic fiscal stabilisers. In a recession, government tax revenues fall (e.g. people earn less so pay less income tax). Also, the government have to spend more on unemployment benefits. Therefore, in an economic downturn, borrowing rises. To eliminate borrowing in a recession would make the recession worse and increase inequality. If the government couldn’t borrow in a recession, the unemployed may not get any benefits and have no income. Also, higher taxes and lower spending would reduce domestic demand and make the recession even worse.
(iii) Political: The biggest tendency to borrow comes from political pressures. Voters generally like to hear the promise of lower taxes and increasing spending. A manifesto to tackle a budget deficit (higher taxes and lower spending) is unlikely to be popular. Voters often are supportive of the general idea of reducing government debt, but when it comes to actual policies like lower benefits, higher pension age, increased VAT rate, then it is likely to hit some particular pressure group with a vested interest in maintaining low tax and spending. For a government to increase borrowing is generally less politically damaging than increasing taxes.
(iv) War: During a war, government spending is stretched leading to higher borrowing. The highest rates of borrowing occurred during the two world wars. Also, during wars, it may be easier to sell bonds as you can play the patriotic card to encourage people to finance government borrowing.
(v) Spending commitment: The government is committed to providing certain benefits, such as pensions and health care spending. With an ageing population, this puts upward pressure on government spending to rise; therefore, governments may start to run a structural deficit. 
     Nigeria is currently owing a lot of countries and borrowing at this state is not advisable. They should pay off its owing debt not borrow to pay
Some reasons why I don’t advise borrowing in Nigeria is; 
	⁃	Debt trap: It’s means borrowing to pay up what you are owing, this is to avoid it due to the amount of borrowing Nigeria has. Thus; The federal government has insisted that Nigeria’s borrowing remains sustainable in the short, medium to long term levels, guided by the DMO objective of prudence. But the problem is not necessarily that we are borrowing, the problem is that we are spending some 60 per cent of national revenue on debt servicing. Without a truthful and forthright government’s acceptance of the debt situation, Nigeria’s chances of escaping its self-inflicted debt trap are fleetingly small. 
	⁃	Some of the people in the federal government borrow for personal consumption. It’s wrong because, borrowing comes where their is sudden spurs, maybe recession, productive activities not for personal consumption. 

(2) What are the indicators of laissez faire economy by Adam Smith 
           Laissez-faire is a French phrase that translates to “leave us alone.” It refers to a political ideology that rejects the practice of government intervention in an economy. Economic theorist Adam Smith believed that the optimal functioning of markets needed minimal government intervention. If people are given the freedom to be the best they can be, the output is the rich and the poor have a better economic situation. The reason of the government is not to make everyone equal. It cannot happen, but rather give everyone the freedom to make choices on their own enlightened self-interest. The only two things that can hold you back are wrong thinking or wrong government. It believed that men basically have the same innate ability to do well in life if given a chance. This means freedom. When people are given the freedom to be the best they can be, the result is the rich and the poor have a better economic situation. The poor are the ones who win in the free trade capitalism of Adam Smith.

(2a) As a new Chief Economic advise your state, how best you want your tenure to be remembered, noting that government cannot do it all alone.
As the new Chief Economist I would advise;
	⁃	The food and fuel crises in Imo has had an effect on employment opportunities, reduced wages etc so I would advices the government to invest more on the production of food through agriculture’s and   also advising people through enlightenment programs to engage in the production of food through agriculture,that it would have an impact not only in a short run but also in a long run, creating a room for foreign exchange for FUEL. 
	⁃	I will aid in the setting of policies that would help in improving savings and most of all investments. This would be done to tackle sudden spurs such as this corona virus were people are at home now, through savings they would be able to feed them selfs. 
	⁃	The State in a whole is entitled to some royalties, this include revenue from crude oil. Thus I would advise the government on how to effectively use the money from crude oil to build more companies in order to prevent the rise in the rate of unemployment.
	⁃	I would also carry out enlightenment campaigns on the positive effects of paying tax thereby showing the citizens the full benefits they would get if they pay tax. This would outrightly improve the willingness of the citizens to pay tax. 

(2b) With practical examples, identify the canons of taxation as proposed by Adam Smith. How practical are the canons to Nigeria?
(i) Canon of Equality:
“The subjects of every State,” Smith asserted, “ought to contribute towards the support of the Government as nearly as possible in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the State. In the observance or neglect of this maxim consists what is called the equality or inequality of taxation.” Equality here does not mean that all tax-payers should pay an equal amount. Equality here means equality or justice. It means that the broadest shoulders must bear the heaviest burden. A good example would be using a company maybe cocoa cola company and a biscuit seller that the tax burden shouldn’t be place heavily on the biscuit seller but on the cocoa cola company. 
(ii) Canon of Certainty:
Adam Smith further said, “The tax which each individual has to pay ought to be certain and not arbitrary. The time of payment, the amount to be paid ought all to be clear and plain to the contributor and to every other person.” The individual should know exactly what, when and how he is to pay a tax otherwise it will cause unnecessary suffering. Similarly, the State should also know how much it will receive from a tax. A good example is that it in the part of the tax collectors that they should state the time, when and how it should be collected to avoid misunderstanding. So a good example is a School owner that since he or she runs a school they should tell him to pay when the students resume school not when they are at home. 
(iii) Canon of Convenience:
Smith wrote, “Every tax ought to be levied at the time or in the manner which it is most likely to be convenient to pay it.” Obviously, there is no sense in fixing a time and method of payment which are not suitable. Land revenue in India is realised after the harvest has been collected. This is the time when cultivators can conveniently pay. A good example should be a monthly salary earner like a lecturer, that tax shouldn’t be collect by the middle of the month because then he has no money then that it should be collected at the end of the month to make it convenient for him/her.
(iv) Canon of Economy:
Lastly, Adam Smith held that “every tax ought to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the State.” This means that the cost of collection should be as small as possible. If the bulk of the tax is spent on its collection, it will take much out of the people’s pockets but bring very little into the State’s pocket. It is not a wise tax. So like for a country like Nigeria tax the resources used to get the equipment shouldn’t be more bigger than(expensive) the amount to be collected it is not a wise tax so the government or state should earn more than what it’s putting in.
    The canons of taxation are not practical in Nigeria, for the canon of equality; it’s not practical in some places in Nigeria like Lagos the Okada men don’t pay tax at all, tax is paid by mostly salary earners and it is usually imposed heavily on them. Tax is collected every month from the income of monthly salary earners even before they are being paid. For the canon of certainty the mostly in Nigeria their are no given procedures on how to collect tax and it’s really not favorable for people who pay tax. The time, when, place and how are not being stated even when it’s stated, they don’t abide by it they come at anytime that and demand for it which is not good for some of the citizens for instance that market seller, they mostly come at anytime and aggressively demand for tax. The tax shouldn’t be too high for low income earners. It should be convenient for people to avoid misunderstanding and suffering. In Nigeria what the state earn through tax is way more than what they put to get them. The canons of tax are not really practical in Nigeria.