THE RELATIONSHIP BETWEEN FISCAL FEDERALISM AND MACRO-ECONOMIC PERFORMANCE

CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

    To understand fiscal federalism, it is imperative to understand federalism as a larger concept, because federalism is the operational context within which fiscal federalism is situated.

      Federalism according to K.C Where is the device of dividing powers so that the central and regional governments are each within a sphere, co-ordinate and independent. He opined that the characteristics of the federal principle are the division of powers and co-ordinate, not sub-ordinate of the two levels of government with respect to their functions (K.C Wheare, 1967:10).

       Federalism is a system in which the power to govern is shared between federal, national and state government creating what is often called a federation (Akindele and Olopa 2002)

       Fiscal federalismdeals with the division of governmental functions and particularly financial relations among levels of government. The theory of fiscal federalism assumes that a federal system of government can  effectively solve financial problems facing government such as, just distribution of income, effective and efficient allocation of resources.

         Musgrave opined that federal or central government should be responsible for income redistribution and allocation of resources should be the responsibility of the state and local government.

         National fiscal policies and financial decisions have been the predominant vehicle formingintergovernmental relations. Fiscal federalism operates through the various federal taxes, grants and transfer that occur in addition to state and localities, the federal government regulates, subsidizes taxes, provides goods and services and redistributes income.

        Fiscal federalism is characterized by fiscal relations between central and lower levels of government. The fiscal relationships between and among the constituents of the federation is explained in terms of fiscal relation which concerns the functions expected to be performed by each level of government in fiscal allocation, interjurisdictional  co-operation which refers to areas of shared responsibilities by the national, state and local governments.

       Nigeria became an independent state in 1960 and the country since independence, contained two hundred and fifty ethnic groups. These ethno-cultural groups have made the task of building viable and functional politics, a difficult task for different administrations that have ruled the country since 1960. From 19602007, different administrations had been confronted with challenges of federalism, corruption, democracy, governance, ethnocentrism and religion. The inability of the federal government of Nigeria to effectively resolve these challenges has impacted negatively on the nation building process in the country.

     In Nigeria, nation building has a long antecedent, thus the nation building initiatives of Chief Olusegun Obasanjo will be viewed from this perspective.

1.2  STATEMENT OF THE PROBLEM

 Nigeria, since it adopted a federal constitution, has not truly operated as a real federation. In the last three decades, Nigerians have contended with not only vanishing real incomes but also unbearable levels of unemployment and inflation, decay in social amenities and failure to maintain the nation‟s infrastructure. There have also been problems of military intervention, problems of allocating the centrally collected revenue equitable among all levels of government.

      Fiscal federalism has been encumbered by non-jurisdictional problems such as imbalance in population, size of land area, resource endowment and levels of development. This dismal performance of the public sector has prevented the creation of opportunities for a resilient and sustainable growth and development of the Nigerian economy, which should be the object of rational and functional fiscal federalism. Constitutionally, Nigeria is a federation, but in practice and with the assumption of power by successive military administrations, the country has more or less being ruled like a unitary state.

          1.3 OBJECTIVES OF THE STUDY

The specific objectives of the study are to:

1.      Show how different levels of government have been given fiscal power to discharge their duties

2.      Show that fiscal federalism had in the past been problematic as to  suggest what formula would best satisfy the various states and the federal government

3.      Examine the structure and practices of fiscal federalism in Nigeria during obasanjo‟s regime from 1999-2007 

4.      To look into the creation of states and local government by the various governments to produce a balanced federation 

1.3 RESEARCH QUESTIONS

1.      Has the creation of more states made better chances of fiscal federalism satisfying the Nigeria masses?

2.      Was there a problem of fiscal federalism in satisfying states and federal governments in the past?

3.      Was there a problem of creating a solution to satisfy various states and federal governments?

4.      How have various levels of government been assigned fiscal powers to discharge their duties?

              1.4 RESEARCH HYPOTHESIS

i) That fiscal federalism tends to ensure equality for the varying parts of the nation ii) The creation of more states makes better chances of fiscal federalism satisfying the Nigerian masses

           1.5 SIGNIFICANCE OF THE STUDY

The significance of this research is to emphasize the importance of fiscal federalism in a diversified country like Nigeria and to be able to support the best formula for revenue allocation to be adopted in Nigeria, to satisfy the thirty-six states of the country.

      1.6     SCOPE OF STUDY

    This study examines the relationship between fiscal federalism and macro-economic performance, it focuses on Chief Olusegun obasanjo‟s administration and it covers a period of eight years (1999-2007)

        1.7  LIMITATION OF THE STUDY

   The major factor posing as a limitation to this study is time constraint due to the time frame     within which the research was carried out. Another factor is financial limitation owing to the insufficient funds to carry out the research and then inability to get much required information from the Federal Capital Territory (FCT) Abuja, due to the distance.

1.8   ORGANISATION OF STUDY

This study would be divided into five chapters .

Chapter one: this would be the introductory chapter and would contain 

i.          Background of the study ii.    The Statement of the problem iii. Objectives of the study iv.          Research questions

v.         Research hypotheses vi.             Significance of the study vii. Scope of study viii.        Limitation of study                   Chapter two: This chapter focuses on literature review and theoretical framework    

                   Chapter three: Methodology

                   Chapter four: Data presentation and analysis

                   Chapter five: Summary, Conclusion and Recommendations