Intergovernmental Transfers and Own Revenues of Subnational Governments in Nigeria

Abstract

The paper explores the effect of intergovernmental transfers on the own revenues of subnational governments in Nigeria. This study employs the instrumental variables (IV) model to establish the impact of annual variation in intergovernmental transfers on the own revenues of subnational governments. The study reveals that states depend mainly on transfers from the federal government to run their operations; and transfers to second-level administrative units, states in Nigeria crowd out own revenues. A 1 percent rise in transfers leads to about 0.65 percent reduction in own revenues per capita. Also, the drive for own revenues goes down in the election year.