Fiscal Behaviour of Subnational Governments in Nigeria: An Augmented Autoregressive Distributed LAG (ARDL) Approach

Abstract

Purpose: The paper examined the determinants of fiscal behavior of subnational governments in Nigeria between 1981 and 2020. Approach/Methodology/Design: An Augmented Autoregressive Distributed Lag (ARDL) bounds test for cointegration which involves an extra F-test on the lagged level variables in the ARDL equation was employed. Findings: The results reveal that finances of the lower level of governments in Nigeria have not been managed optimally as there appeared a misplaced priority in terms of government outlay. Practical Implications: The implication presented in this paper is meant for the concerned authorities. The results indicate the need for the subnational governments in Nigeria to cut the overhead costs of governance by reducing the frivolous expenditures in order to curtail the incessant borrowing habit of these tiers of government locally and internationally. Originality/value: Despite the fact that factors determining subnational fiscal behavior have been approached from diverse ideological and methodological perspectives, yet, the challenges linger on, the paper, therefore, employed sophisticated econometric technique to examine why the finances of the lower level of governments in Nigeria have not been managed optimally.