Fiscal Federalism and Socio-Economic Development in Nigeria: A Case of Local Government Finance

Abstract

Fiscal federalism demands that each level of government should have adequate resources to perform its functions without appealing to the higher level of government for financial assistance. It is the division of taxing and expenditure functions among levels of government. But the experience in Nigeria shows that local governments have not been able to embark on socio-economic development in their areas without appealing to the higher levels of government namely; federal and state. This is as a result of unmatched functional responsibilities with financial strength or capabilities, overdependence on statutory allocation, tax evasion, restricted revenue jurisdiction by the local government etc. This study examines fiscal federalism and socio-economic development in Nigeria with specific attention to local government finance. The study adopts fiscal decentralization theory as its theoretical framework. The study employs survey method which involved the administration of questionnaire on 600 respondents from the six (6) geo-political zone in Nigeria. The study reveals that fiscal responsibility and taxing powers still remain considerably centralized with the Federal Government taking the lion share without much impact on the people. The study further reveals that, the most viable and productive taxes are exclusive reserve of the Federal Government which further strengthens its financial muscle vis-a-vis Local Government. Based on this, the study recommends among others, that, both federal and state government should ensure that functional responsibility of local government is commensurate with its financial capabilities and more power should be given to local government to generate more funds in terms of tax regimes.