Fiscal Federalism In Nigeria : Experience Since 1967 And Proposals For Thr Future

ABSTRACT

The thesis is on fiscal federalism in Nigeria particularly since 1967 and proposals for future revenue allocation in Nigeria. As a background, it sketches the framework of a federal as distinct from a unitary system of government, noting the role of the public sector in the former. It reviews the developments in fiscal federalism in the two decades 1946 - 1966, a period that witnessed the evolution from a unitary to a federal form of government and also the corresponding changes in the sphere of decision-making powers of the then regional governments.

The study makes a major contribution in making concrete proposals for adoption in future revenue allocation in Nigeria. allocating revenue among the tiers of government, it relates the share of each level of government from the federally-collected revenue to its constitutional responsibilities under the 1979 Constitution and uses the resulting shares in total expenditures as a guide in determining the relative shares from revenue. Eight principles are adopted in allocating revenue - independent revenue (applied to all levels of government), population, derivation, equality, progress, revenue effort, revenue equalisation and urbanization (applied to local governments only). In allocating revenue among the states, revenue shared on derivation is excluded from the Federation Account and allocated separately. The principles of population, equality, progress and revenue effort are applied in allocating the states' share from the Federation Account. The final allocations to states are derived by applying revenue equalisation grants on the allocations from the five principles. The principal component analysis approach is used in determining the weights of population, progress and revenue effort while a discretionary weight is assigned to equality. The use of principal component analysis to derive the weights of these principles is considered a significant improvement on the practice in the past when weights attached to revenue allocation principles were arbitrarily determined.

The resulting revenue allocation system provides revenue considered adequate in relation to constitutional responsibilities to each level of government, more revenue to the lower levels of government and distributes the state governments' share from revenue more equitably among them. The proposed revenue allocation system is equitable. It should also be acceptable.