Fiscal Federalism and Growth of Local Government Expenditure in Nigeria; Structural Analysispdf

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Fiscal Federalism and the Growth of Local Government Expenditure in Nigeria (1976 – 2006): A Structural Analysis

By

Muhammed Tanimu
NSU/ADM/Ph.D./032/10/11

A Seminar Paper Presented in partial fulfillment of the requirement for the award of Ph.D in Public Administration to the Department of Public Administration, Faculty of Administration, Nasarawa State University, Keffi

2012

Abstract
The paper highlights and assesses the nature, quality, value of particular issues and matters that have dominated the Nigerian federal polity and which have created unpleasant experiences and pains at one ABSTRACT

The true situation of Nigerian federalism constrains local autonomy. It affects the local governments' ability to mobilise and use revenue to meet their obligations in a sustainable manner. This study examines the possible causes of this problem and concludes that their implications for local government are very serious. It however recognises other issues like corruption, poverty, mismanagement and low quality of personnel, both political and career officers, which also undermines the role of local governments in development. The study confirmed the dominance of consumption expenditure over capital expenditure, which contributed to non-performance of local government in areas of rural and grassroots development. Also contributing to the non-performance of local governments was the excessive control of state government over the budget of local government. The role of Local Government Service Commission and the Ministry or Department of Local Government in the Deputy Governor's Office, has virtually constrained the independence of local governments to use their resources for the services that are of priority to their people. Almost all the expenditures of the local government must conform to the provisions of the Financial Memoranda, which in itself is quite obsolete and out of tune with the developmental role of local government in the 21st Century. This pattern of relationship between the state government and local government councils in the country defeats the intention to make local governments prime centres for social and economic development. The methodology adopted for this study includes econometric techniques, ordinary least squares, multiple and simple regression as well as time series analysis. Secondary and primary data were also collected for the study. On the basis of the results of regression analysis ;md hypotheses testing based on time series data covering 30-year period (1976-2006) and 12 local government councils in six geopolitical zones in the country, we established a strong and positive relationship between the growth of local government expenditure and external sources of revenue of the local government. The implication of this relationship is that local government expenditure depend heavily on the external sources of revenue and less on the internal sources. The result of the hypothesis also showed that the external sources of revenue is the major determinant of local government expenditure both the recurrent and capital expenditures during the period of investigation (1976 - 2006). For the result of the Granger causality test using Augmented Dickey Fuller (ADF) Unit Root test, the result showed that economic growth represented by GDP has caused local government expenditure but the expenditure has not caused economic growth, that means there is no feedback mechanism; hence, the variables are not cointegrated. This implies that irrespective of the specification, there is no long-run relationship between expenditure and economic growth. Under the null hypothesis that Y does not cause X, we observed that the test is not significant for all the three models. This result has confirmed what was determined already that public sector expenditure and income do not move in sympathy. Thus, for the Nigerian economy, even (hough there has been tremendous expansion in public spending since oil...
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