| Summary: | Given the possible effective economic roles that sub-central governments can perform, i.e., those of Allocation and Distribution. This study examined the extent of fiscal decentralisation in Nigeria, with a view to seeing the relative degree of autonomy of the states. This autonomy is seen as a strong basis for allowing the states to undertake the two responsibilities effectively if the fiscal capacities, costs and needs of these jurisdictions are equalised. However, before seeing whether equalisation is feasible using grants, we runned a series of regressions to find out whether the tool for equalisation (which in this case is the country's statutory allocation) has an impact on state government expenditures. The results obtained showed that whilst there was an increasing trend towards fiscal decentralisation it was never-the-less not uniform over time. In consideration of the factors that affect the decentralisation drive we found the grant variable to be quite significant, implying that States independence is among others a function of grants from the Federal Government. Further it was found that grants (in this case only statutory allocation) are quite significant in the factors that affect State expenditures. Hence this suggest that fiscal capacity equalisation based on costs/needs can be effected by the States using federal grants. So ultimately we developed a model to show the extent of fiscal capacity equalisation undertaken using federal transfers, aimed at reducing horizontal fiscal imbalance. Deviations were found between the use of the formula for disbursements to states based on the fiscal capacity and needs/costs of each state, and the actual/estimated disbursements existing at present, suggesting that the problem of horizontal fiscal imbalance is not effectively tackled. This we hope will be remedied by the policy recommendations put forward.
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