Fiscal Federalism and Economic Growth Process in Nigeria

Abstract

Nigeria as a nation operates a federal structure of government, federalism refers the existence in one country of more than one level of government, each with different expenditure responsibilities and taxing powers. The major aim of this study is to asses the impact of revenue allocation on economic growth in Nigeria.

Secondary data employed in this study were assembled from CBN statistics, National Bureau of statistics and federal ministry of Finance. OLS was used to estimate multiple regression model where GDP as dependent variable and independent variable were population growth rate, inflation rate, growth rate of share of federal government from the federal account, growth rate of state government from the federal account, growth rate of share of local government from the federal account. The results obtained from the regression shows that there exists a direct relationship between the revenue allocation formula as proxies by the share of federal, state and local government from the federation account and economic process in Nigeria. From the above result, it can therefore be concluded that policy to maintain macroeconomic stability by controlling the rate of inflation within reasonable limit is required to promote economic growth and development.