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FISCAL FEDERALISM AND REVENUE ALLOCATION FROM FEDERATION ACCOUNT TO STATES EQUITABLE AND FAIR

ABSTRACT

The study examines fiscal federalism and revenue allocation from federation account to States, with a view to determine if it is equitable and fair using state per capita allocation from 2000-2013. The purpose of the research is to determine whether there is a significant difference in the per-capita allocation to individual Nigerians in the different states of the federation. The study adopted the descriptive research design, and data were obtained from CBN statistical bulletin. Distribution tables were used for presenting federation allocation, data to the states including the per capita allocation computed. Rank correlation was used to rank the per capital allocation data, while the Kruskal Wallis test statistic was used to test the hypothesis. The finding shows that there is a significant difference in the state’s per-capita allocation computed. The study recommends that revenue allocation should be geared towards meeting the nation’s economic needs rather than focus on geopolitical and ethnocentric considerations. Emphasis should be based on revenue generating ability of the states and fiscal federalism should be upheld.

CHAPTER ONE

INTRODUCTION

1.0     OVERVIEW OF THE STUDY

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1.2     STATEMENT OF THE PROBLEM

The return of democratic government is expected to lead to the practice of a more balanced system of fiscal federalism, more transparency, fiscal accountability and more devolution of powers to lower units of government and hence more fiscal decentralization. While a greater degree of decentralization would, no doubt, contribute to greater grassroots participation, generate more local development, increase efficiency and equity, create employment opportunities and promote poverty alleviation. It must not be done in such a way as to conflict with the national objective or unduly complicate it.

The change in the internal geographic structure of the nation as a result of strong and continuous agitation for state creation has led to distortion in the revenue allocation formula and this has weakened the fabrics of federalism. For example, 12 states were created out of four regions in 1967. In 1987, the number of state rose to 19 while local government rose to 300. By 1991, the number of state government had risen to 30 with 589 local governments and 1996, the number of state rose to 36 with 774 local governments. Till date we still have 36 states and 774 local governments. Given the associated rising cost of running federal system that is provision of secretariats, staff salaries and allowances, rental and buildings, provision of utilities and increasing outlays on maintenance and new projects, statutory allocations to state and local government together with internal revenues have become grossly inadequate. It is in the light of the above issues that there is the need to study the revenues allocation and its impact on the economic growth process in Nigeria.

The issues of revenue allocation in Nigeria is a fundamental one that borders on promotion of national unity and rapid economic growth. It is however sad that despite continuous increase in revenue generation in Nigeria over the years, the expected impact on economic growth in Nigeria has not been realized. The purpose of this study therefore is to assess the horizontal distribution formula for the states’ share of revenue from the federation account among the in individual states so as to determine whether it discriminates against Nigerians in any part of the federation.

1.3     OBJECTIVE OF THE STUDY

The objective of this study therefore is to assess the horizontal distribution formula for the state share of revenue from the Federation account among the individual states so as to determine whether it discriminates against Nigerians in any part of the Federation.

. To determine whether the host factors in the formula for distribution have any relationship with the distribution of the federation account.

. To determine whether with the formula, there will be a significant difference in the per-capita allocation to individual Nigerians in the different state of the federation.

1.4     RESEARCH QUESTIONS

The study tends to look at the following research questions to enable the Researcher formulate proper hypotheses.

. Do the host factors in the formula for distribution have any relationship with the distribution of the federation account?

. Does the sharing formula bring about significant difference in the per-capita allocation to individual Nigerians in the different state of the federation?

1.5     HYPOTHESES

For proper appraisal of the fiscal federalism in Nigeria, the study formulated the following hypotheses:

Hypothesis I

Ho: There is no significant relationship between the host factors in the formula and the distribution of the federation account.

Hi: There is significant relationship between the host factors in the formula and the distribution of the federation account.

Hypothesis II

Ho: With the formula, there is no significant difference in per capital allocation to individual Nigerians in the different states of the federation.  

Hi: With the formula, there is significant difference in per capital allocation to individual Nigerians in the different states of the federation.  

1.6     SCOPE OF THE STUDY

The study is timely and appropriate at a time various states of the federation and individuals in the states are agitating for resource control or increase in allocation from the central. The scope will cover the host factors in the formula and distribution of federation account to the states per capital allocation to individuals in 27 states of the federation for the period 2000-2013. Data for this study which is basically on the revenue accruing to each of the oil producing states from the state’s share of federation for the period 2004-2013 will be obtained from the Office of the Accountant General of the Federation. The data on the population of each state and the growth rate of population over the study period will be obtained from the National Population Bureau. Therefore, with the annual allocation and population, we will be able to compute the per-capita allocation for each of the states over the study period.

1.7     SIGNIFICANCE OF THE STUDY

The study is significant to the following set of people in the country:

Policy Makers; the members of Federal Houses of Assemble for appropriate allocation of the country’s resources for equal developmental purposes.

Academia; higher and research institutions for academic exercises.

1.8     LIMITATION OF THE STUDY

As with other research but slightly different, the major constraints of this research work are that of data collection, logistics and time.

1.9     DEFINITION OF TERMS

Fiscal Policy: Is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. It is the sister strategy to monetary policy through which a central bank influences a nation’s money supply.

Fiscal Federalism: Is part of broader public finance discipline. The term was introduced by the German-born American economist Richard Musgrave in 1959. Fiscal federalism deals with the division of governmental functions and financial relations among levels of government.

Nigeria: Is a federal constitutional republic comprising 36 states and its Federal Capital Territory, Abuja. Nigeria is located in West Africa and shares land borders with the Republic of Benin in the, Chad west and Cameroon in the east, and Niger in the north.

Per – Capita: is a Latin word that translates into “by head”. Basically, meaning “average per person”. Per capita can take the place of saying “per person” in any number of statistical observances.

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