Abstract
<p>It is a time series analysis that investigates on the role of democratic institution in the relationship between fiscal decentralisation and economic development in Nigeria. The trend analysis clearly showed that sub-national expenditure is higher than sub-national revenue in Nigeria. The federally allocated expenditures to sub-national is far more than its corresponding allocated revenue in Nigeria and this becomes manifest from the year 1999 when the nation returned to civil rule up till 2014 under the administration of a dominant political party known as the People’s Democratic Party (PDP). Using multiple regression analysis, the empirical results revealed 1% increase in expenditure decentralisation and revenue decentralisation would retard economic performance by 11% and 21% respectively when democratic institution index is included as explanatory variable. The impact of democratic institution in the relationship between fiscal decentralisation and economic performance in Nigeria is however, weak, positive and statistically insignificant in Nigeria as 100% increase in expenditure decentralisation and revenue decentralisation only yield 4% and 5% economic performance respectively in Nigeria. This has resulted to a wide spread level of corruption in Nigeria among bureaucrats and politicians. The study therefore advocates for a strong government institution that will be transparent, accountable and also respect the rule of law for sustainability, effectiveness and timely service delivery.</p>
Highlights
Fiscal decentralisation is the devolution of expenditures functions and tax revenue sources from the national government to sub-national government has been on the policy agendas of Nigeria and other developing and transitional economies as well as OECD countries in the recent decade to promote national development objectives (Oates, 1994; Murphy, 1995)
The empirical results revealed 1% increase in expenditure decentralisation and revenue decentralisation would retard economic performance by 11% and 21% respectively when democratic institution index is included as explanatory variable
Democratic governance provides the necessary condition for the realization of efficiency gains associated with fiscal federalism as it is through election of public officials, other democratic institutions like referendum and poll that the tax payers reveal their preferences for goods and services as well as their willingness to pay for them
Summary
Fiscal decentralisation is the devolution of expenditures functions and tax revenue sources from the national government to sub-national government has been on the policy agendas of Nigeria and other developing and transitional economies as well as OECD countries in the recent decade to promote national development objectives (Oates, 1994; Murphy, 1995). Out of seventy-five developing and emerging economies with populations greater than five million, all but twelve claim to have embarked on some type of transfer of power to local governments (Dillinger, 1994; Davoodi and Zou, 1998; Rodriguez-Pose and Kroijer, 2009) so as to escape the traps of inefficient governance, which would in turn lead to macroeconomic instability and insufficient growth and development This theoretical expectation from fiscal federalism has made it to be in vogue as both the developed and developing countries are turning to devolution to improve the development of their public sectors (Oates, 1999) through economic development and democratic governance.
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