FISCAL FEDERALISM AND UNEMPLOYMENT REDUCTION IN DEMOCRATIC ECONOMIES: EVIDENCE FROM NIGERIA (1999-2015)

Matthew J. Kromtit¹; Gideon G. Goshit¹, & Adakai F. Amayah²

¹Department of Economics, University of Jos, Jos, Nigeria.

²Department of Political Science, University of Jos, Nigeria

Email: kromtitm1@gmail.com; kromtitm@unijos.edu.ng

Abstract

The Nigerian federal system over the years is beset by a lingering lopsidedness in revenue allocation among the three tiers of government-Federal, State and Local Governments amidst the debate whether the public or private sectors should be the major driver of the economy given rising unemployment. Therefore, this study aims at investigating the causal relationship between the statutory allocations to the levels of government, and unemployment in the country and estimating their contribution to unemployment reduction since the return to democracy in 1999. By using the Granger Causality Technique, the result shows that independence is suggested between Federal, State and local governments’ allocations and unemployment in Nigeria at 5% level of significance. The Ordinary Least Squares was used to determine the impact of federation allocations to various tiers on unemployment. The result indicates that while the Federal and State Governments’ impact positively on unemployment, the local Governments’ impact is negative. A 1% increase in federal allocation to the federal and states government would respectively lead to 118.17% and 11.06% increase in unemployment    while Local Governments would have a greater reduction of 54.76% in unemployment; The study concludes that the relationship between fiscal federalism and unemployment reduction in Nigeria is significant. It is thus recommended that more revenue should be allocated to Local Governments; Federal and State Governments levels should be more efficient in the allocation of funds; and a greater synergy should be promoted between the levels of government as well as between government and the private sector so as to help reduce unemployment in Nigeria.

Keywords: Fiscal Federalism, Democracy, Unemployment and Nigeria.