Abstract
This study examined the fiscal decentralization-economic growth nexus in Nigeria, with the objective of establishing the causal relationship between measures of fiscal decentralization and economic growth covering the period 1981-2019. Employing the autoregressive distributed lag (ARDL) technique of econometrics, the analyses revealed that fiscal decentralization variables employed in the study vis-a-vis federal government, state government and local government expenditures have a positive and significant impact on economic growth in Nigeria except for local government expenditure which was not significant at any level. This behaviour is adduced to be a function of poor governance, corruption and other underlying structural challenges at that level. Also, it was observed that while real GDP has a positive and significant impact on private consumption expenditure, its impact on unemployment was not significant at any level. The study therefore concludes that the nature and pattern of growth in Nigeria has not been inclusive. Consequently, it is recommended that fiscal relations governing the different tiers of government be reviewed to meet existing realities while coordinated fiscal policy measures and improved governance will enhance growth and the fiscal space in the country.
Highlights
Fiscal decentralization involves the devolution of powers from the central government to subnational governments
According to Martinez-Vasquez and McNab (2001), fiscal decentralization has become endearing mainly due to the consideration that it will boost the efficiency of public expenditures, and the fact that it is seen as a means of breaking the central government’s grip on the economy by shifting fiscal authority to subnational governments
Tanzi (2001), asserts that the convergence among nations towards fiscal decentralization is borne out of the following: the deepening democratization which has given rise to more voice and weight to the preferences of specific groups and regions; the rise of globalization leading to market areas that are no longer identical national territories; decentralization taking the form of a superior good which has become more desirable following rising income; and the desire of richer regions through awareness to crave for more independence
Summary
Fiscal decentralization involves the devolution of powers from the central government to subnational governments. Tanzi (2001), asserts that the convergence among nations towards fiscal decentralization is borne out of the following: the deepening democratization which has given rise to more voice and weight to the preferences of specific groups and regions; the rise of globalization leading to market areas that are no longer identical national territories; decentralization taking the form of a superior good which has become more desirable following rising income; and the desire of richer regions through awareness to crave for more independence Despite these attractions above, researchers have cautioned that decentralization carries certain drawbacks that could derail the possible gains highlighted. The country is fraught with rising levels of poverty and unemployment, decay in public infrastructure and high levels of inflation This tends to negate the argument for fiscal decentralization that it engenders economic growth through allocative efficiency.
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