Abstract
Purpose: The paper examined the determinants of fiscal behavior of subnational governments in Nigeria between 1981 and 2020. Approach/Methodology/Design: An Augmented Autoregressive Distributed Lag (ARDL) bounds test for cointegration which involves an extra F-test on the lagged level variables in the ARDL equation was employed. Findings: The results reveal that finances of the lower level of governments in Nigeria have not been managed optimally as there appeared a misplaced priority in terms of government outlay. Practical Implications: The implication presented in this paper is meant for the concerned authorities. The results indicate the need for the subnational governments in Nigeria to cut the overhead costs of governance by reducing the frivolous expenditures in order to curtail the incessant borrowing habit of these tiers of government locally and internationally. Originality/value: Despite the fact that factors determining subnational fiscal behavior have been approached from diverse ideological and methodological perspectives, yet, the challenges linger on, the paper, therefore, employed sophisticated econometric technique to examine why the finances of the lower level of governments in Nigeria have not been managed optimally.
Highlights
Defined, inequality and poverty have remained high and persistent in African economies despite the high growth experienced in the three decades before the very recent dismal performance in these economiesas a result of global resource price shocks (Ogunsola, 2019)
The results reveal that finances of the lower level of governments in Nigeria have not been managed optimally as there appeared a misplaced priority in terms of government outlay
To ascertain the order of integration, the paper began by applying the Augmented DickeyFuller (ADF) and Phillips Perron (PP) unit root tests
Summary
Inequality and poverty have remained high and persistent in African economies despite the high growth experienced in the three decades before the very recent dismal performance in these economiesas a result of global resource price shocks (Ogunsola, 2019). Poor governance has been blamed as one key factor for the increasing inequality and poverty This is especially at sub-central levels of governance. Due to natural resource price shocks, some African economies experience recessions, unable to meet fiscal obligations leading to higher public debt levels in some (Goodfellow, 2018). The behavior of public expenditure (recurrent and capital), debt (domestic and foreign) and total revenue before, during and after 2008-2009 financial/economic crisis and recent price shocks would be worth studying. Tahir & Perver (2017) observed that giving the sub-national governments the authority to raise loans from both the domestic and international sources did not yield the expected results of economic development. Any reduction in the collection of statutory revenue from the federation account results in personal costs being unpaid This makes such states not economically viable for existence (El-Rufia, 2012). Factors determining subnational fiscal behaviour have been approached from diverse ideological and methodological perspectives, yet, the challenges linger on, the need for this study
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