Subnational Tax Autonomy, Vertical Allocation, and Capital Expenditure Responsibilities: A Study of an Emerging Market

Abstract

It has become imperative that subnational governments in the Nigerian federal system faithfully represent their tax autonomy and statutory receipts through their developmental efforts. The influence of states’ independent revenue initiatives and vertical allocations on capital spending is investigated in this study. The analysis spans from 2000 to 2019nd counted on secondary data from the Central Bank of Nigeria’s Statistical Bulletin. The goal of this work is to explore how much tax income generated by states and allocated from the federation account influences infrastructure development in Nigeria’s 36 states, as well as the Federal Capital Territory (FCT) of Abuja. The point is that economic development can only be achieved if the fiscal decentralization in the country characterized by revenue and expenditure responsibilities is well maximized. Thus, the study uses multiple regression techniques to arrive at the empirical results, which indicate that the states’ tax efforts do not express tangible improvement in infrastructural development. On the other hand, the result also highlights that the statutory apportionment to the states significantly affects states’ capital projects. Summarily, the study recommends conducive business vicinity and commitment of the government to provide public goods and services required by the citizens.