Fiscal Federalism and Socioeconomic Development in Nigeria

Abstract

This paper examines how fiscal federalism had enhanced socioeconomic development in Nigeria. Nigeria has 36 states with political autonomy but depend on the federal government for economic survival since all productive activities belong to the federal government. Our analysis and discussion show that states with high production and revenue generation capacities were able to reduced poverty, create more jobs and improve literacy and human capital in spite of the federal government using most of their revenue to service states with less revenue generation capacity. The paper also reveals that almost all the states with very low production and revenue generation capacities have very high poverty level, unemployment and illiteracy level. Lagos, Rivers, Oyo and Ogun states were found to have generated more revenue than the rest states of the federation hence achieved higher level of economic development or socio-economic outcomes than other states. This implies that if the states are allowed to produce based on the available resources they have and pay tax to the federal government, the states will achieve higher level of development than what they have now. Based on these findings, the paper recommends the scraping of the present principles for revenue sharing and the enthronement of the derivation principle in which the federating units produce and pay tax to the central government as measures toward achieving sustainable development in Nigeria