Designing a Rational and Optimal Fiscal Federalism for Nigeria

Abstract

Nigeria, because of its peculiar evolution—the Federal system, tends to emphasize not cooperation but competition between the constituent units and the centre, and among the constituent units themselves. Especially with the discovery of oil, bad governance and the non-performance of the public sector has re-echoed the problem of intergovernmental fiscal arrangement among the different levels of government to the front burner, which has remained dominant and most contentious in Nigeria’s polity. It is upon this background, that it becomes necessary to lend a voice in designing a rational and optimal fiscal federalism for our dear nation, Nigeria, because the nature and conditions of the financial relations in any federal system are crucial to its continued existence. This paper explores revenue allocation formulas through a descriptive historical analysis, and by taking cognizance of the main issues and challenges of fiscal federalism recommended that derivation principle should be encouraged—but not relegating the national unity to the background—and corruption should be fought to a standstill without sentiment.