Fiscal Federalism in Nigeria: Implication for Growth

Aims: This paper examines growth evidence of federal government allocation share, state governments’ allocation share, and state governments’ internally generated revenue in Nigeria.

Study Design: Dynamic Model and Correlation were used.

Methodology: We used aggregate annual data obtained from the Central Bank of Nigeria, Annual Statistical Bulletin. The period covered in the study is 1970 to 2009. Econometrics approach was used.

Results: At 5% level of significant, the regression result shows that allocations to the federal government (FGAS), allocations to the state governments (SGAS) and state governments’ internally generated revenue (SIGR) significantly impact growth. However, while allocations to the federal government (FGAS) and state governments’ internally generated revenue (SIGR) impact positively on growth; allocations to the state governments (SGAS) has negative impact. In addition, civilian administration as against military rule, has led to about 0.35% increase in growth vis-à-vis the management of federation account.

Conclusion: The revenue allocation formula in Nigeria should not be reviewed in favour of the state governments. The state governments should rather enhance their business environment to generate more internal revenue.