Academic journal article European Journal of Sustainable Development

Fiscal Federalism and Economic Welfare in Nigeria: An Econometric Analysis

Academic journal article European Journal of Sustainable Development

Fiscal Federalism and Economic Welfare in Nigeria: An Econometric Analysis

Article excerpt

(ProQuest: ... denotes formula omitted.)

1. Introduction

Federation implies the existence in one country of more than one level of government, each with different expenditure responsibilities and taxing powers (Ekpo, 2004). In the Nigeria context, this consists of a federal government, 36 states, federal capital territory and 774 local governments. The fiscal arrangement among the different tiers of government in a federal structure is often referred to as fiscal federalism.

Conceptually, fiscal operations of any economy can be viewed from two extreme forms of the public sector. On one hand, there exists a highly decentralized fiscal system in which the government at the centre has no economic functions. The other tiers of government perform virtually all economic functions. The other extreme is a case of total centralization where the central government takes total responsibility for all economic activities of the public sector and therefore no other tiers of government participate in the economic life of the nation. In practice, there exists some degree of decentralization in all economies (Ekpo, 1999).

Mowhood (1983) and Smith (1985) defined decentralization as any act by which central government formally cedes power to actors and institutions at lower levels in political administrative and territorial hierarchy. The objective as argued by Ribot (2002) includes downsizing central government by increasing local participation in democracy and strengthening local government.

The introduction of a democratic experiment in 1999 re-echoed the problems of intergovernmental fiscal arrangement among the different levels of government. The issues of revenue allocation and the sharing formula have generated such intense debate that led to the demand of a national conference. It was during this period that the 'resource control' phenomena rose to an unprecedented dimension such that the struggle for political power become the fight for resource control. Hence, the democratic experiment has created 'new' problems; the interference by the executive arm of government on the functions of the National Revenue Mobilization Allocation and Fiscal Commission (NRMAFC) on the appropriate revenue-sharing formula among the different levels of government, the debate regarding the correct interpretation of the section of the 1999 constitution affecting the derivation principle, among others have posed challenges for Nigeria's fiscal federalism (Onah and Ukwueze,nd). It is the thinking of most Nigerians that with fiscal decentralization, economic welfare of Nigerians will be automatic.

In view of the above, it is pertinent to ask some fundamental questions. Such questions include but not limited to:

What impact has fiscal federalism (fiscal decentralization) had on economic welfare of Nigerians?

Is there any difference between the impact of fiscal federalism on the economic welfare of Nigerians during military and civilian regimes?

Answers to the above questions will help to direct scholarly debate on relevance of fiscal federalism in Nigeria. Two hypotheses have been formulated to guide this study Viz:

Ho: There is no significant relationship between fiscal decentralization (proxied by the number of states, the number of local governments, expenditure concentration ratio; revenue concentration ratio; and fiscal autonomy ratio) and economic welfare proxied by per-capita income.

Ho: There is no significant difference between the impact of fiscal decentralization (proxied by the number of states, the number of local governments, expenditure concentration ratio; revenue concentration ratio; and fiscal autonomy ratio) and economic welfare during military rule and civilian rule.

While part one of these papers is on introduction, part two deals with literature review. Part three is research design, presentation and discussion of findings while the last part is, on conclusion and recommendations. …

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