Introduction

Fiscal decentralisation has become fashionable regardless of levels of development and civilisation of societies. Nations are turning to devolution to improve the performance of

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Afro Asian Journal of Social Sciences Volume 2, No. 2.2 Quarter II 2011 ISSN 2229 - 5313

their public sectors. In the United States, the central government has turned back significant portions of federal authority to the states for a wide range of major programmes, including welfare, Medicaid, legal services, housing, and job training. The hope is that state and local governments, being closer to the people, will be more responsive to the particular preferences of their constituencies and will be able to find new and better ways to provide these services (Sharma, 2005:169).

Fiscal federalism can be explained as an arrangement that involves intergovernmental fiscal relations mostly in contemporary federations. Nevertheless, it is not a peculiarity of federal states alone; its elements are also noticed in most of the unitary states too. The concept of fiscal federalism is not to be associated with fiscal decentralization in officially declared federations only; it is applicable even to non-federal states (having no formal federal constitutional arrangement) in the sense that they encompass different levels of government which have de facto decision making authority (Adamolekun, 1983).

This, however, does not mean that all forms of governments are 'fiscally' federal; it only means that 'fiscal federalism' is a set of principles that can be applied to all countries attempting 'fiscal decentralization'. In fact, fiscal federalism is a general normative framework for assignment of functions to the different levels of government and appropriate fiscal instruments for carrying out these functions (Oates, 1999: 1120)

Nigeria is a plural country that can be aptly classified as a federal state. The establishment of the Nigerian federal structure dated back to the 1946 adoption of Richard’s constitution which granted internal autonomy to the then existing regions of Nigeria. Also, the adoption of the Littleton constitution of 1954 laid further credence to the federal structure of Nigeria (Nwosu, 1980).

Even in non-federal states, there has been a growing movement towards greater fiscal decentralisation in recent years. Some analysts have attributed this to globalisation and deepening democratisation the world over on the one hand and increasing incomes on the

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other (Tanzi, 1996). Other specific reasons for the increasing demand for decentralisation are:

Central governments increasingly are finding that it is impossible for them to meet all of the competing needs of their various constituencies, and are attempting to build local capacities by delegating responsibilities downward to their regional governments.

Central governments are looking to local and regional governments to assist them with national economic development strategies.

Regional and local political leaders are demanding more autonomy and want the taxation powers that go along with their expenditure responsibility (Ozo-Eson, 2005:1)

Over the years, the issue of fiscal federalism has remained dominant and most contentious in Nigeria’s polity. This is because of its multi-dimensional perspectives. Over the years the fiscal federalism in Nigeria has crystallised and remained dynamic as a result of its multiplicity in terms of ethnic composition and pluralism vis-à-vis socio-cultural dimensions. It is naturally expected, therefore, that interactions in terms of fiscal relations will be characterised by hostile competition, unending struggle and survival of the fittest syndrome. The centralised nature of the military hierarchical structure and the exploitative tendencies of the colonial government placed the federal government at an advantage in post colonial Nigeria.

Invariably, the financial hegemony enjoyed by the Federal Government over the thirty six (36) states and seven hundred and seventy four (774) local governments has created disaffection in the Nigerian federation. It reinforces the structural vulnerability of the component units while simultaneously intensifying the pressures for better federal economic patronage.

Federalism: A Conceptual Clarity

Understanding federalism as a larger concept will help facilitate the understanding of fiscal federalism. This is because federalism is the operational context within which fiscal

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federalism is situated. Thus, it is an integral aspect of federalism. Federalism refers to a political system where there are at least two levels of government. In such cases, there is the juxtaposition of two levels of power of a central government otherwise called the federal government and other states labelled variously as states, regions, republics, cantons or unions (Ajayi, 1997:150)).

Federalism is derived from the Latin word “foedus” meaning covenant. It is a political concept in which a group of members are bound together by covenant with a governing representative head. The term is also used to describe a system of the government in which sovereignty is constitutionally divided between a central governing authority and constitutional political units (like states or provinces). Federalism is a system in which the power to govern is shared between national state governments, creating what is often called a federation (Akindele and Olaopa, 2002). It is a political theory that is divergent in concept, varied in ecology and dynamic in practice. It has to do with how power is distributed or shared territorially and functionally among the various units in a federation.

Also, Itse Sagay (2008, A11) conceptualised federalism as:

an arrangement whereby powers within a multi-national country are shared between a federal government and component units in such a way that each unit, including the central authority exists as a government separately and independently from others, operating directly on persons and properties with its territorial area and with a will of its own apparatus for the conduct of affairs and with an authority in some matters exclusive of others.

In analysing this purview, it is apparent that each unit of government within a federation exists, not as an appendage of another government, but as an autonomous entity capable of conducting its own will free from directive by any other government. Asobie’s (1985, 26) perspective places emphasis on the intricacies of federalism. He identified two broad areas of cooperation in federalism.

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Afro Asian Journal of Social Sciences Volume 2, No. 2.2 Quarter II 2011 ISSN 2229 - 5313

The first relates to capacity of citizens, as individuals and groups, to relate to each other federally, that is as partners respectful of each other’s integrity while cooperating for the common good in every aspect of life, not just in the political realm.

The second area views federalism as a social phenomenon which emphasises the existence of essentially permanent religious, ethnic, cultural or social groups, camps or pillars around which a polity is organised.

Fiscal federalism is concerned with “understanding which functions and instruments are best centralized and which are best placed in the sphere of decentralized levels of government” (Oates, 1999:1120). In other words, it is the study of how competencies (expenditure side) and fiscal instruments (revenue side) are allocated across different (vertical) layers of the administration. An important part of its subject matter is the system of transfer payments or grants by which a central government shares its revenues with lower levels of government.

Fiscal Federalism is characterised by the fiscal relations between central and lower levels of government. That is, it is manifest by the financial aspects of the devolvement of authority from the national to the regional and local levels. Fiscal federalism covers two interconnected areas. The first is the division of competence in decision making about public expenditures and public revenue between the different levels of government (national, regional and local). The second is the degree of freedom of decision making enjoyed by regional and local authorities in the assessment of local taxes as well as in the determination of their expenditures (Kesner-Skreb, 2009:235).

In fact, fiscal federalism is a general normative framework for the assignment of functions to the different levels of government and appropriate fiscal instruments for carrying out these functions. Sharma (2005:38) perceives fiscal federalism as a set of guiding principles, a guiding concept that helps in designing financial relations between the national and sub-national levels of the government, fiscal decentralization on the other hand as a process of applying such principles.

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