Urbanisation, fiscal decentralisation and economic development: A time series evidence

Abstract

Several empirical tests using Multiple Regression Analyses were conducted on several hypotheses using time series data obtained from the federal and state governments. The results of our analyses establish that the degree of fiscal decentralisation is dependent on intergovernmental transfers and states income per capita. However intergovernmental transfers were not dependent on expenditure decentralisation per se. The degree of urbanisation was found to be inversely related to fiscal decentralisation. The variable measuring the degree of openess was found not statistically significant as an explanatory variable for fiscal decentralisation. However, the share of agriculture was found significant in revenue decentralisation but loses its importance in expenditure decentralisation. The policy implications of the study are that: (i) There is need for the states to develop plans to increase their per capita income, improve their tax collection system, introduce new tax bases and reduce the high degree of free ridership in public goods and services exhibited by the urban population. (ii) The Federal Government should provide specific grants to state governments for urban development, because of the high per capita cost of public goods and services. (iii) The existing Revenue Allocation Act should be reviewed to reflect state government efforts in generating their own revenue from internal sources.