IDEAS home Printed from https://ideas.repec.org/p/nip/nipewp/02-2020.html
   My bibliography  Save this paper

Is there an “invisible hand” in the formula-based intergovernmental transfers in Nigeria?

Author

Listed:
  • Kayode Taiwo

    (NIPE and University of Minho; Department of Economics, Adekunle Ajasin University, Akungba-Akoko, Nigeria)

  • Linda G. Veiga

    (NIPE and Department of Economics, University of Minho)

Abstract

Intergovernmental transfers are susceptible to the tactical influence of the transfer-giving government notwithstanding the institution of a formula-based system under the control of an independent institutional body. This study explores the arrangement of intergovernmental transfers in Nigeria, where the formula-based system under the control of a constitutionally recognised body is in place, using the data from the year 2007 to the year 2016. The general conclusion from this study does not support equity considerations but rather tactical manipulation in intergovernmental transfers. Results suggest that states with poor fiscal capacity, especially the rural and less developed states, receive lower transfers per capita, contrary to equity considerations. There is evidence that transfers to states under the control of opposition parties and term-limited governors are lower. Additionally, transfers are strategically increased to all states during election periods possibly for the federal government’s political base enlargement and strengthening.

Suggested Citation

  • Kayode Taiwo & Linda G. Veiga, 2020. "Is there an “invisible hand” in the formula-based intergovernmental transfers in Nigeria?," NIPE Working Papers 02/2020, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:02/2020
    as

    Download full text from publisher

    File URL: http://repositorium.sdum.uminho.pt/bitstream/1822/64095/3/NIPE_WP_02_2020%20v2.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Brender, Adi & Drazen, Allan, 2005. "Political budget cycles in new versus established democracies," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1271-1295, October.
    2. Toke S. Aidt & Julia Shvets, 2012. "Distributive Politics and Electoral Incentives: Evidence from Seven US State Legislatures," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 1-29, August.
    3. Ladipo Adamolekun, 2005. "The Nigerian Federation at the Crossroads: The Way Forward," Publius: The Journal of Federalism, CSF Associates Inc., vol. 35(3), pages 383-405, Summer.
    4. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
    5. Alberto Porto & Pablo Sanguinetti, 2001. "Political Determinants of Intergovernmental Grants: Evidence From Argentina," Economics and Politics, Wiley Blackwell, vol. 13(3), pages 237-256, November.
    6. Juan Luis Gómez-Reino & Jorge Martinez-Vazquez, 2013. "An international perspective on the determinants of local government fragmentation," Chapters, in: Santiago Lago-Peñas & Jorge Martinez-Vazquez (ed.), The Challenge of Local Government Size, chapter 2, pages 8-54, Edward Elgar Publishing.
    7. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    8. Eric Dubois, 2016. "Political business cycles 40 years after Nordhaus," Public Choice, Springer, vol. 166(1), pages 235-259, January.
    9. Emilie Caldeira, 2012. "Does the System of Allocation of Intergovernmental Transfers in Senegal Eliminate Politically Motivated Targeting?," Journal of African Economies, Centre for the Study of African Economies, vol. 21(2), pages 167-191, March.
    10. David Roodman, 2009. "How to do xtabond2: An introduction to difference and system GMM in Stata," Stata Journal, StataCorp LP, vol. 9(1), pages 86-136, March.
    11. Kauder, Björn & Potrafke, Niklas & Reischmann, Markus, 2016. "Do politicians reward core supporters? Evidence from a discretionary grant program," European Journal of Political Economy, Elsevier, vol. 45(C), pages 39-56.
    12. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01291401, HAL.
    13. Akhmed Akhmedov & Ekaterina Zhuravskaya, 2004. "Opportunistic Political Cycles: Test in a Young Democracy Setting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(4), pages 1301-1338.
    14. Santiago Lago-Peñas & Jorge Martinez-Vazquez (ed.), 2013. "The Challenge of Local Government Size," Books, Edward Elgar Publishing, number 15294.
    15. Dahlberg, Matz & Johansson, Eva, 2002. "On the Vote-Purchasing Behavior of Incumbent Governments," American Political Science Review, Cambridge University Press, vol. 96(1), pages 27-40, March.
    16. Jameson Boex & Jorge Martinez-Vazquez, 2005. "The Determinants of the Incidence of Intergovernmental Grants: A Survey of the International Experience (2005)," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0509, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    17. Shi, Min & Svensson, Jakob, 2006. "Political budget cycles: Do they differ across countries and why?," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1367-1389, September.
    18. Vernon Henderson & Adam Storeygard & David N. Weil, 2011. "A Bright Idea for Measuring Economic Growth," American Economic Review, American Economic Association, vol. 101(3), pages 194-199, May.
    19. Maarten Allers & Lewis Ishemoi, 2011. "Do Formulas Reduce Political Influence on Intergovernmental Grants? Evidence from Tanzania," Journal of Development Studies, Taylor & Francis Journals, vol. 47(12), pages 1781-1797.
    20. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    21. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(1), pages 1-16.
    22. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65(2), pages 135-135.
    23. Stuti Khemani, 2007. "The Political Economy of Equalization Transfers," Springer Books, in: Jorge Martinez-Vazquez & Bob Searle (ed.), Fiscal Equalization, chapter 0, pages 463-484, Springer.
    24. David Roodman, 2009. "A Note on the Theme of Too Many Instruments," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(1), pages 135-158, February.
    25. Brollo, Fernanda & Nannicini, Tommaso, 2012. "Tying Your Enemy's Hands in Close Races: The Politics of Federal Transfers in Brazil," American Political Science Review, Cambridge University Press, vol. 106(4), pages 742-761, November.
    26. Kauder, Björn & Björn, Kauder & Niklas, Potrafke & Markus, Reischmann, 2016. "Do politicians gratify core supporters? Evidence from a discretionary grant program," VfS Annual Conference 2016 (Augsburg): Demographic Change 145509, Verein für Socialpolitik / German Economic Association.
    27. Costa-I-Font, Joan & Rodriguez-Oreggia, Eduardo & Lunapla, Dario, 2003. "Political Competition and Pork-Barrel Politics in the Allocation of Public Investment in Mexico," Public Choice, Springer, vol. 116(1-2), pages 185-204, July.
    28. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
    29. Gonschorek, Gerrit J. & Schulze, Günther G. & Sjahrir, Bambang Suharnoko, 2018. "To the ones in need or the ones you need? The political economy of central discretionary grants − empirical evidence from Indonesia," European Journal of Political Economy, Elsevier, vol. 54(C), pages 240-260.
    30. Stephen Ansolabehere & James M. Snyder, 2006. "Party Control of State Government and the Distribution of Public Expenditures," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(4), pages 547-569, December.
    31. Eric Dubois, 2016. "Political Business Cycles 40 Years after Nordhaus," Post-Print hal-01291401, HAL.
    32. Pablo Simon-Cosano & Santiago Lago-Peñas & Alberto Vaquero, 2014. "On the Political Determinants of Intergovernmental Grants in Decentralized Countries: The Case of Spain," Publius: The Journal of Federalism, CSF Associates Inc., vol. 44(1), pages 135-156, January.
    33. Unknown, 2005. "Forward," 2005 Conference: Slovenia in the EU - Challenges for Agriculture, Food Science and Rural Affairs, November 10-11, 2005, Moravske Toplice, Slovenia 183804, Slovenian Association of Agricultural Economists (DAES).
    34. Kauder, Björn & Potrafke, Niklas & Reischmann, Markus, 2016. "Do politicians reward core supporters? Evidence from a discretionary grant program," European Journal of Political Economy, Elsevier, vol. 45(C), pages 39-56.
    35. Wallace E. Oates & Wallace E. Oates, 2004. "An Essay on Fiscal Federalism," Chapters, in: Environmental Policy and Fiscal Federalism, chapter 22, pages 384-414, Edward Elgar Publishing.
    36. Arulampalam, Wiji & Dasgupta, Sugato & Dhillon, Amrita & Dutta, Bhaskar, 2009. "Electoral goals and center-state transfers: A theoretical model and empirical evidence from India," Journal of Development Economics, Elsevier, vol. 88(1), pages 103-119, January.
    37. Alt, James E. & Lassen, David Dreyer, 2006. "Fiscal transparency, political parties, and debt in OECD countries," European Economic Review, Elsevier, vol. 50(6), pages 1403-1439, August.
    38. Treisman, Daniel, 1996. "The Politics of Intergovernmental Transfers in Post-Soviet Russia," British Journal of Political Science, Cambridge University Press, vol. 26(3), pages 299-335, July.
    39. J. Vernon Henderson & Adam Storeygard & David N. Weil, 2012. "Measuring Economic Growth from Outer Space," American Economic Review, American Economic Association, vol. 102(2), pages 994-1028, April.
    40. Linda Veiga & Francisco Veiga, 2013. "Intergovernmental fiscal transfers as pork barrel," Public Choice, Springer, vol. 155(3), pages 335-353, June.
    41. Linda G. Veiga & Georgios Efthyvoulou & Atsuyoshi Morozumi, 2018. "Political Budget Cycles: Conditioning Factors and New Evidence," NIPE Working Papers 21/2018, NIPE - Universidade do Minho.
    42. Linda Veiga & Maria Pinho, 2007. "The political economy of intergovernmental grants: Evidence from a maturing democracy," Public Choice, Springer, vol. 133(3), pages 457-477, December.
    43. William D. Nordhaus, 1975. "The Political Business Cycle," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(2), pages 169-190.
    44. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    45. Banful, Afua Branoah, 2011. "Do formula-based intergovernmental transfer mechanisms eliminate politically motivated targeting? Evidence from Ghana," Journal of Development Economics, Elsevier, vol. 96(2), pages 380-390, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gonschorek, Gerrit J. & Schulze, Günther G. & Sjahrir, Bambang Suharnoko, 2018. "To the ones in need or the ones you need? The political economy of central discretionary grants − empirical evidence from Indonesia," European Journal of Political Economy, Elsevier, vol. 54(C), pages 240-260.
    2. Markus Reischmann, 2016. "Empirical Studies on Public Debt and Fiscal Transfers," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 63.
    3. Anastasios Kitsos & Antonios Proestakis, 2021. "Mediating distributive politics: political alignment and electoral business cycle effects on municipality financing in Greece," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(1), pages 1-26, August.
    4. Abel Fumey, 2018. "Intergovernmental fiscal transfers and tactical political maneuverings: Evidence from Ghana’s District Assemblies Common Fund," WIDER Working Paper Series 031, World Institute for Development Economic Research (UNU-WIDER).
    5. Levoshko, Tamila, 2017. ""Pork-Barrel"-Politik und das regionale Wirtschaftswachstum. Empirische Evidenz für die Ukraine und Polen," Working Papers 0642, University of Heidelberg, Department of Economics.
    6. Georgios Efthyvoulou, 2012. "Political budget cycles in the European Union and the impact of political pressures," Public Choice, Springer, vol. 153(3), pages 295-327, December.
    7. Andrew Abbott & René Cabral & Philip Jones, 2017. "Incumbency and Distributive Politics: Intergovernmental Transfers in Mexico," Southern Economic Journal, John Wiley & Sons, vol. 84(2), pages 484-503, October.
    8. Abel Fumey, 2018. "Intergovernmental fiscal transfers and tactical political maneuverings: Evidence from Ghana's District Assemblies Common Fund," WIDER Working Paper Series wp-2018-31, World Institute for Development Economic Research (UNU-WIDER).
    9. Vitor Castro, 2016. "Shades of red and blue: Political ideology and sustainable development," Proceedings of International Academic Conferences 3606234, International Institute of Social and Economic Sciences.
    10. Margarita Katsimi & Vassilis Sarantides, 2012. "Do elections affect the composition of fiscal policy in developed, established democracies?," Public Choice, Springer, vol. 151(1), pages 325-362, April.
    11. Fabio Fiorillo & Elvina Merkaj, 2021. "A comprehensive approach to intergovernmental grants’ tactical allocation. Theory and estimation guidelines," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(4), pages 995-1013, August.
    12. Milan Bednař, 2019. "Political Budget Cycles in the European Union: New Evidence of Fragmentation," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(4), pages 523-547, December.
    13. Toke S. Aidt & Vitor Castro & Rodrigo Martins, 2018. "Shades of red and blue: government ideology and sustainable development," Public Choice, Springer, vol. 175(3), pages 303-323, June.
    14. García, Israel & Hayo, Bernd, 2021. "Political budget cycles revisited: Testing the signalling process," European Journal of Political Economy, Elsevier, vol. 69(C).
    15. Kayode Taiwo, 2022. "Intergovernmental Transfers and Own Revenues of Subnational Governments in Nigeria," Hacienda Pública Española / Review of Public Economics, IEF, vol. 240(1), pages 31-59, March.
    16. Niklas Potrafke, 2006. "Political Effects on the Allocation of Public Expenditures: Empirical Evidence from OECD Countries," Discussion Papers of DIW Berlin 653, DIW Berlin, German Institute for Economic Research.
    17. Furdas, Marina & Homolkova, Katerina & Kis-Katos, Krisztina, 2015. "Local Political Budget Cycles in a Federation: Evidence from West German Cities," IZA Discussion Papers 8798, Institute of Labor Economics (IZA).
    18. Vergne, Clémence, 2009. "Democracy, elections and allocation of public expenditures in developing countries," European Journal of Political Economy, Elsevier, vol. 25(1), pages 63-77, March.
    19. Niklas Potrafke, 2012. "Political cycles and economic performance in OECD countries: empirical evidence from 1951–2006," Public Choice, Springer, vol. 150(1), pages 155-179, January.
    20. Florian Dorn, 2021. "Elections and Government Efficiency," ifo Working Paper Series 363, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.

    More about this item

    Keywords

    Fiscal federalism; Intergovernmental transfer; Political targeting; Panel data; Nigeria.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nip:nipewp:02/2020. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: NIPE (email available below). General contact details of provider: https://edirc.repec.org/data/nipampt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.