The Impact of Subnational Internally Generated Revenue on Infrastructural Development: The Case of Kwara State, Nigeria

Abstract

The financial independence of state governments hinges on their ability to prioritize Internally Generated Revenue (IGR), which could help them to better achieve the social welfare and infrastructure needs of their citizens. The purpose of this study is to investigate the impact of internally generated revenue on infrastructural development in Kwara state. By decomposing IGR into tax and non-tax revenue, we hypothesize that there is no significant long-term and short-term relationship between tax/non-tax revenue and Kwara state infrastructural development. Due to its ability to avoid stationary data problems, Auto-Regressive Distributed Lag (ARDL) was employed to analyze the annual data which were extracted from the Kwara state financial statement report from 1999–2023. This study finds that IGR and loan have a significant positive influence on infrastructural development, both in the short and long run. However, tax revenue influence can only be felt in the short-run and the previous year’s loan exhibits a negative effect on infrastructural development in the current year. Practically, these results imply that IGR is an essential source of revenue for the Kwara state government to finance capital projects, especially non-tax revenue, the effects of which tend to also be felt in the long-run. It can also be linked to the fiscal decentralization concept that supports the state government’s fiscal autonomy. The study suggests that the Kwara state government should increase its tax base and rate in a form that would not yield negative consequences on the state economy, and diversify its non-tax revenue sources to cushion unexpected economic shocks.