EFFECT OF SUBNATIONAL PUBLIC EXPENDITURE ON STATES’ FISCAL SUSTAINABILITY IN NIGERIA

Abstract

Objectives: The study examined the effect of subnational public expenditure on states’ fiscal sustainability in Nigeria. Specifically, the study examined the effect of capital expenditure and recurrent expenditure on states’ fiscal sustainability in Nigeria. Methods Ex-post facto research design was adopted to carry out the research for the period 2016-2022. The panel data were collected and sourced from Audited Financial Statements of subnational, CBN statistical Bulletin, CBN Annual report and accounts, other CBN publications, publications of the National Bureau of Statistics (NBS), and Ministry of Finance (MOF) Medium Term Fiscal Framework and other publications of 36 states. Panel regression was used to analyse the hypothesis significant effect between subnational public expenditure and states’ fiscal sustainability in Nigeria with the aid of E-views 12. Results: The study found that capital expenditure has a significant effect on states’ fiscal sustainability in Nigeria. The study also found that recurrent expenditure negatively affects states’ fiscal sustainability in Nigeria. Conclusion: The study recommends that the state governments of Nigeria should adhere strictly to the implementation of capital expenditure so as to increase the level of infrastructural and productive base in Nigeria which will have the capacity to stimulate economic growth and create employment. Also, state governments should decrease spending, particularly regarding recurrent expenditure, to reduce the cost of governance in the country. This is because our results indicated that an increase in government recurrent expenditure reduces the level of the sustainability index.