Impact of Intergovernmental Transfers on Household Multidimensional Well-Being

Abstract

Do intergovernmental transfers affect the multidimensional well-being of households? This paper investigates the relationship between intergovernmental transfers and household multidimensional well-being, using the revenue allocation by the federal government to sub-national or state governments in Nigeria. We follow Alkire & Foster to compute a multidimensional poverty index (MPI), which is the weighted sum of three broad dimensions of poverty – health, education, and living standards. We adopt an instrumental variable (IV) approach by using exogenous variation in oil windfalls as an instrument to mitigate the endogeneity concerns associated with using intergovernmental transfers in our analysis. We find that an increase in intergovernmental transfers leads to an improvement in household multidimensional well-being or a decline in the multidimensional poverty index. We identify recurrent and capital expenditures as some of the potential channels through which intergovernmental transfers affect the multidimensional well-being of households in Nigeria. The findings of this paper reinforce the growing evidence of the developmental impacts of intergovernmental transfers, especially in the context of developing countries.