CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
To understand fiscal federalism, it is imperative to understand federalism as a
larger concept, because federalism is the operational context within which fiscal
federalism is situated.
Federalism according to K.C Where is the device of dividing powers so that the
central and regional governments are each within a sphere, co-ordinate and
independent. He opined that the characteristics of the federal principle are the
division of powers and co-ordinate, not sub-ordinate of the two levels of government
with respect to their functions (K.C Wheare, 1967:10).
Federalism is a system in which the power to govern is shared between federal,
national and state government creating what is often called a federation (Akindele
and Olopa 2002)
Fiscal federalism deals with the division of governmental functions and
particularly financial relations among levels of government. The theory of fiscal
federalism assumes that a federal system of government can effectively solve
financial problems facing government such as, just distribution of income, effective
and efficient allocation of resources.
Musgrave opined that federal or central government should be responsible for
income redistribution and allocation of resources should be the responsibility of the
state and local government.
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National fiscal policies and financial decisions have been the predominant
vehicle forming intergovernmental relations. Fiscal federalism operates through the
various federal taxes, grants and transfer that occur in addition to state and localities,
the federal government regulates, subsidizes taxes, provides goods and services and
redistributes income.
Fiscal federalism is characterized by fiscal relations between central and lower
levels of government. The fiscal relationships between and among the constituents of
the federation is explained in terms of fiscal relation which concerns the functions
expected to be performed by each level of government in fiscal allocation, interjurisdictional co-operation which refers to areas of shared responsibilities by the
national, state and local governments.
Nigeria became an independent state in 1960 and the country since
independence, contained two hundred and fifty ethnic groups. These ethno-cultural
groups have made the task of building viable and functional politics, a difficult task
for different administrations that have ruled the country since 1960. From 1960-
2007, different administrations had been confronted with challenges of federalism,
corruption, democracy, governance, ethnocentrism and religion. The inability of the
federal government of Nigeria to effectively resolve these challenges has impacted
negatively on the nation building process in the country.
In Nigeria, nation building has a long antecedent, thus the nation building
initiatives of Chief Olusegun Obasanjo will be viewed from this perspective.
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1.2 STATEMENT OF THE PROBLEM
Nigeria, since it adopted a federal constitution, has not truly operated as a real
federation. In the last three decades, Nigerians have contended with not only
vanishing real incomes but also unbearable levels of unemployment and inflation,
decay in social amenities and failure to maintain the nation‟s infrastructure. There
have also been problems of military intervention, problems of allocating the centrally
collected revenue equitable among all levels of government.
Fiscal federalism has been encumbered by non-jurisdictional problems such as
imbalance in population, size of land area, resource endowment and levels of
development. This dismal performance of the public sector has prevented the
creation of opportunities for a resilient and sustainable growth and development of
the Nigerian economy, which should be the object of rational and functional fiscal
federalism. Constitutionally, Nigeria is a federation, but in practice and with the
assumption of power by successive military administrations, the country has more or
less being ruled like a unitary state.
1.3 OBJECTIVES OF THE STUDY
The specific objectives of the study are to:
1. Show how different levels of government have been given fiscal power to
discharge their duties
2. Show that fiscal federalism had in the past been problematic as to suggest what
formula would best satisfy the various states and the federal government
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3. Examine the structure and practices of fiscal federalism in Nigeria during
obasanjo‟s regime from 1999-2007
4. To look into the creation of states and local government by the various
governments to produce a balanced federation
1.3 RESEARCH QUESTIONS
1. Has the creation of more states made better chances of fiscal federalism
satisfying the Nigeria masses?
2. Was there a problem of fiscal federalism in satisfying states and federal
governments in the past?
3. Was there a problem of creating a solution to satisfy various states and federal
governments?
4. How have various levels of government been assigned fiscal powers to
discharge their duties?
1.4 RESEARCH HYPOTHESIS
i) That fiscal federalism tends to ensure equality for the varying parts of the
nation
ii) The creation of more states makes better chances of fiscal federalism
satisfying the Nigerian masses
1.5 SIGNIFICANCE OF THE STUDY
The significance of this research is to emphasize the importance of fiscal federalism in a
diversified country like Nigeria and to be able to support the best formula for revenue
allocation to be adopted in Nigeria, to satisfy the thirty-six states of the country.
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1.6 SCOPE OF STUDY
This study examines the relationship between fiscal federalism and macro-economic
performance, it focuses on Chief Olusegun obasanjo‟s administration and it covers a period
of eight years (1999-2007)
1.7 LIMITATION OF THE STUDY
The major factor posing as a limitation to this study is time constraint due to the time frame
within which the research was carried out. Another factor is financial limitation owing to the
insufficient funds to carry out the research and then inability to get much required information
from the Federal Capital Territory (FCT) Abuja, due to the distance.
1.8 ORGANISATION OF STUDY
This study would be divided into five chapters .
Chapter one: this would be the introductory chapter and would contain
i. Background of the study
ii. The Statement of the problem
iii. Objectives of the study
iv. Research questions
v. Research hypotheses
vi. Significance of the study
vii. Scope of study
viii. Limitation of study
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Chapter two: This chapter focuses on literature review and theoretical framework
Chapter three: Methodology
Chapter four: Data presentation and analysis
Chapter five: Summary, Conclusion and Recommendations
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