Fiscal Federalism
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study Fiscal federalism is essentially about multilevel government structure, rather than within a level structure of government, for the performance of government functions and service delivery to the people. Each level of government can be viewed as an institution with definite functions to perform (Rivlin, 1991). The conventional wisdom in economics is that all functions allocated to government should be those that the market is not able to perform in the efficient allocation of resources, equitable distribution of income, and economic stability and growth (Varian, 1990; Layard and Walters, 1978). Fiscal federalism in Nigeria dates back to 1954 when the country, which had until then been governed as a unitary state by the British, adopted a federal constitution. However, despite over fifty years of experience with fiscal federalism, the country is still beset with the challenges of economic management, poor output growth rate, high inflation rate, and weak balance of payment position. The absence of good economic governance has also raised the problematic issue of credibility in public policy. Relevant question central to this thesis is could fiscal federalism challenges be responsible for poor economic performance in Nigeria? Another question is: What are the current issues or challenges inhibiting the principles and practice of fiscal federalism in Nigeria? In Nigeria, fiscal federalism has generated intense debate and controversy in recent years. Debates about fiscal management within federal system are not peculiar to Nigeria. From independence in 1960 till date (2011) Nigeria’s fiscal management system has neither been efficient nor equitable (Ike, 2012). Indeed it manifested a wide spectrum of vulnerability, ethnicity, language, region and religion interactively forming Nigeria’s matrix of cultural pluralism (Ike, 2012). The Federal Government has, for more than four decades
INTRODUCTION
1.1 Background to the Study Fiscal federalism is essentially about multilevel government structure, rather than within a level structure of government, for the performance of government functions and service delivery to the people. Each level of government can be viewed as an institution with definite functions to perform (Rivlin, 1991). The conventional wisdom in economics is that all functions allocated to government should be those that the market is not able to perform in the efficient allocation of resources, equitable distribution of income, and economic stability and growth (Varian, 1990; Layard and Walters, 1978). Fiscal federalism in Nigeria dates back to 1954 when the country, which had until then been governed as a unitary state by the British, adopted a federal constitution. However, despite over fifty years of experience with fiscal federalism, the country is still beset with the challenges of economic management, poor output growth rate, high inflation rate, and weak balance of payment position. The absence of good economic governance has also raised the problematic issue of credibility in public policy. Relevant question central to this thesis is could fiscal federalism challenges be responsible for poor economic performance in Nigeria? Another question is: What are the current issues or challenges inhibiting the principles and practice of fiscal federalism in Nigeria? In Nigeria, fiscal federalism has generated intense debate and controversy in recent years. Debates about fiscal management within federal system are not peculiar to Nigeria. From independence in 1960 till date (2011) Nigeria’s fiscal management system has neither been efficient nor equitable (Ike, 2012). Indeed it manifested a wide spectrum of vulnerability, ethnicity, language, region and religion interactively forming Nigeria’s matrix of cultural pluralism (Ike, 2012). The Federal Government has, for more than four decades
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