Fiscal Federalism in Nigeria

2955 Words Apr 7th, 2012 12 Pages

The question of an acceptable formula for revenue sharing among the component tiers of the Nigerian nation is one of the most protracted and controversial debates in the political and macroeconomic management of the economy. This debate has its foundations in the history and evolution of the Nigerian federation.
“Revenue allocation or the statutory distribution of revenue from the Federation Account among the different levels of government has been one of the most contentious and controversial issues in the nation’s political life. So contentious has the matter been that none of the formulae evolved at various times by a commission or by decree under different regimes since 1964 has gained general acceptability
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(e) Principle of Fiscal Equalization: In order to ensure a minimum level of public goods and services same degree of fiscal equalization is required. This is as a result of differences in resource endowment.
(f) The Efficiency Principle: This principle implies that efficiency must be applied in the allocation of resources
(g) The Principle of Derivation: The component units of a system should be able to control some of its own resources as they desire.
(h) The Principle of Locational Neutrality: Interregional fiscal differences tend to influence location choices of individuals and firms. Therefore, policy should focus on minimizing distortions due to some interference. Hence, differential taxes which create locational distortions should be avoided as much as practicable.
(i) The Principle of Centralized Redistribution: This principle states that the redistribution function of fiscal policy through progressive taxation and expenditure programmes should be centralized at the federal level. That is, if the redistributive function is decentralized, it can result in distortions in location decisions. It should be noted that the above principles are not mutually consistent.

THE CHALLENGES AND RECCOMENDATIONS: There are several challenges and contending issues
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