CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Fiscal federalism and Nigerian federalism, which mirrors the amount of fiscal autonomy and responsibility accorded to sub national governments has been an important subject in the policy equation of many developing and developed countries. Fiscal federalism and Nigerian federalism is essentially about the allocation of government resources and spending to the various tiers of government (Oates, 1972; Tanzi 1995). In general the intensification of clamour for greater decentralization is informed by a combination of people desiring to get more involved in government, and the inability of the central government to deliver quality services (Chete, 1998). Fiscal federalism serves as a constraint on the behavior of revenue-maximizing central government, while it serves as a booster on behalf of underdeveloped subnational governments. Since 1990s there has been a resurgence of interest in the macroeconomic performance of developing countries. A prominent element in the policy advice given to developing countries to enhance growth and development potentials is the fundamental need to restructure the public sector to make it more responsive to efficient and equitable provision of public services for the public sector’s contribution to a stable macroeconomic performance (Aigbokhan, 1999). A trend that has emerged from this public sector restructuring is the devolution of spending and revenue-raising responsibilities to lower levels of government not only in federal systems, but also in many unitary countries. This trend is a reflection of the movement towards participatory democracy and the need to provide public goods and services that meet the preferences of people in each locality.
Nigerian federalism is essentially about multilevel government structure, rather than within a level structure of government, for the performance of government functions and service delivery to the people. Each level of government can be viewed as an institution with definite functions to perform (Rivlin, 1991). The conventional wisdom in economics is that all functions allocated to government should be those that the market is not able to perform in the efficient allocation of resources, equitable distribution of income, and economic stability and growth (Varian, 1990; Layard and Walters, 1978).
There are different forms of federalism. The prominent ones are fiscal, political and administrative. Decentralized systems of government give rise to a set of fiscal exigencies referred to as fiscal federalism also known as fiscal decentralization. It refers to the scope and structure of the tiers of governmental responsibilities and functions, and the allocation of resources among the tiers of government to cope with respective functions. Decentralization encompasses a wide range of distinct processes. The main ones are administrative deconcentration, or the transfer of state functions from higher to lower levels of government while retaining central control over budgets and policy making; fiscal deconcentration, or the ceding of influence over budgets and financial decisions from higher to lower levels; and development or transfer of resources and political authority to lower-level authorities that are independent of higher levels of government.
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