ANALYSIS OF THE IMPACT OF FISCAL FEDERALISM AND REVENUE ALLOCATION FORMULA ON ECONOMIC DEVELOPMENT IN NIGERIA (A CASE STUDY OF STATE MINISTRY OF FINANCE, LAFIA,NASSARAWA STATE)

CHAPTER ONE

INTRODUCTION

1.1. BACKGROUND OF THE STUDY

The issue of financial political theory in Nigeria seems to have derailed national development due to financial imbalance, over-dependence on the centre, agitation for resource management, among others. Thus, unjust distribution practices haven't self-addressed the matter of true political theory. Financial political theory could be a political-economic arrangement whereby the general public revenue of a federation is shared among the assorted levels of state. These levels are centre, the federating states or provinces and the applicable regional governments (Uchendu, 2012). Fiscal federalism necessitates revenue sharing arrangement to enable the component units carry out their various functions (Danjuma, 2015). Federalism recognizes two or three levels of government (central, state and local), each level has different expenditure responsibilities and taxation powers for national development (Buettner and Wildasin, 2007). The issue of revenue sharing formula generated intense debate that led to the demand for sovereign national conference in Nigeria, but the revenue resources have not tallied with constitutional responsibilities (Onuoha, 2007). Put differently, financial subordination makes mockery of federalism no matter how carefully the legal forms may be preserved. The states must not permanently remain dependent on the federal government for allocations. The degree of fiscal decentralization in a federal state contributes to national development, employment generations and poverty alleviation (Owolabi, 2011).  Nigeria as a nation operates a federal structure of state political theory refers the existence in one country of over one level of state, every with completely different expenditure responsibilities and heavy powers. This shows that financial political theory, a consequence of political theory, is all concerning the connection among the various units of functions and tax powers to the constituent units. The existence of imbalance between functions and resource base makes it expedient for the upper level of state to transfer revenue to the lower level. This can be said as ‘efficiency transfer or balancing’ the sharing of funds from the federation account is one in every of the contentious and sensitive problems within the Nigerian nation polity this has remained a central part of surface relations. In Nigeria revenue allocation is taken as the distribution of national revenue among the various tiers of government in the federation in such away as to reflect the structure of fiscal federalism. This issue is therefore necessary that in other countries it's become a national question (Mbanefoh 2012, Emenuqua, 2012). As an example stunned (2012) discovered that a satisfactory answer to the question and its solution” This shows that in any nation the steadiness as a political entity depends to an outsized extent on revenue allocation. A democratically non-appointive government will be sustained if solely there’s an acceptable distribution of nation revenue among state governments themselves.

1.2 STATEMENT OF 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 power 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 opportunity 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 1976, the number of state rose to 19 while local government and in 2008, 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 that is provision of secretariats, staff salaries and allowances rental and buildings, provision of utilities and increasing outlays on maintained 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 economic growth process in Nigeria has not been utilized. Hence the need to examine empirically whether revenue allocation formula adopted in the past has had any meaningful impact on the economic growth process in Nigeria. The issue of revenue allocation in Nigeria is a fundamental one that border on promotion of national unity and rapid economic growth. It is however sad the despite continuous increase in revenue generation in Nigeria over the years, the expected impact on economic growth in Nigeria has not been realized. Hence the need to examine empirically whether revenue allocation formula adopted in the past had any meaningful impact on the economic growth process in Nigeria.

1.3. AIMS OF THE STUDY

The major purpose of this study is to examine the impact of fiscal federalism and revenue allocation formula on economic development in Nigeria. Other general objectives of the study are:

1. To examine the extent to which the revenue allocation formula adopted in the past has affected the path of economic growth and development in Nigeria.

2. To examine the character of Nigeria’s fiscal federalism with a view to using the system as a yardstick to measure the economic performance of the Nigerian Federation.

3. To examine the impact of Nigeria’s fiscal federalism and revenue allocation formula on economic development of the country.

4. To examine the political and economic rationales for revenue sharing in Nigeria.

5. To examine the relationship between fiscal federalism, revenue allocation formula and economic development in Nigeria.

6. To Proffer solution to the teething problem of revenue allocation formula in view of macroeconomic aspiration of rapid economic growth and development in Nigeria.

1.4 RESEARCH QUESTIONS

1. What is the extent to which the revenue allocation formula adopted in the past has affected the path of economic growth and development in Nigeria?

2. What is the character of Nigeria’s fiscal federalism with a view to using the system as a yardstick to measure the economic performance of the Nigerian Federation?

3. What are the impacts of Nigeria’s fiscal federalism and revenue allocation formula on the economic development of the country?

4. What are the political and economic rationales for revenue sharing in Nigeria?

5. What is the relationship between fiscal federalism, revenue allocation formula and economic development in Nigeria?

6. What is the solution to the teething problem of revenue allocation formula in view of macroeconomic aspiration of rapid economic growth and development in Nigeria?

1.5 RESEARCH HYPOTHESES

H01: There is no impact of Nigeria’s fiscal federalism fiscal federalism and revenue allocation formula on the economic development of the country.

H02: There is no significant relationship between fiscal federalism, revenue allocation formula and economic development in Nigeria.

1.6 SIGNIFICANCE OF THE STUDY

At the completion of the study, it is believed that the findings will be of great importance to the federal government of Nigeria as the study seek to enumerate the benefit of fiscal federalism to the national unity of the country, this is because when the federal character is properly adhered to it brings the sense of oneness and national unity, the findings of the study will also help the long standing problem of national disunity in the country. The study will also be of great benefit to researcher who intends to embark on research in similar topic as the study will serve as a reference point to the study. Having clearly identified the problems of sharing the revenue accruing to the nation state of Nigeria. The search of solution should start with making tireless efforts to educate the people to understand the principle and to be reasonably flexible in formulating the underlying formula for the distribution of revenue among the differed level of government, the three tiers of government in an acceptable manner in order to promote national unity through common hitherto. Finally, the study will be of great importance to academia’s, researchers, lecturers, teachers, students, and the general public as the findings will add to the pool of knowledge.

1.7    SCOPE OF THE STUDY 

The study is based on analysis of the impact of fiscal federalism and revenue allocation formula on economic development in Nigeria.

1.8 LIMITATION OF STUDY

Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).

Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

1.8 DEFINITION OF TERMS

Federalism: Is the mixed or compound mode of government, combining a general government (the central or 'federal' government) with regional governments (provincial, state, cantonal, territorial or other sub-unit governments) in a single political system. Its distinctive feature, exemplified in the founding example of modern federalism by the United States of America under the Constitution of 1787, is a relationship of parity between the two levels of government established. It can thus be defined as a form of government in which there is a division of powers between two levels of government of equal status.

Revenue Allocation: Revenue allocation can be described as a method of sharing the centrally generated revenue among different tiers of government and how the amount allocated to a particular tier is shared among its components for economic development.