Fiscal Decentralisation, Subnational Tax Autonomy, and Development Outcomes in Nigeria

This study empirically analyses the effects of fiscal decentralisation and subnational tax autonomy on development outcomes across Nigeria's 36 states and the FCT. Fiscal decentralisation theory predicts that greater subnational tax autonomy, matched with expenditure responsibilities, improves allocative efficiency, accountability, and public service delivery. However, Nigeria's particular federal architecture, characterised by low state IGR and high transfers, may constrain these theoretical benefits. Using a panel dataset of state-level data over fifteen years, the study constructs an index of subnational tax autonomy combining measures of IGR as a share of total revenue, state-specific tax legislation activity, and devolved tax bases. Development outcomes are proxied by health and education expenditure efficiency scores, estimated using data envelopment analysis. Fixed-effects and two-stage least squares panel regression are employed to address reverse causality. The study expects to find a positive and significant relationship between subnational tax autonomy and development outcome efficiency, with the effect being stronger in states with higher administrative capacity. It also anticipates that externally generated revenue dependency weakens the accountability link between taxpayers and subnational governments, reducing service delivery incentives. Contributions include the construction of a novel Nigerian subnational tax autonomy index. Recommendations address constitutional reform of the tax jurisdiction list and investment in state revenue administration capacity. Keywords: fiscal decentralisation, subnational tax autonomy, development outcomes, IGR, Nigerian federalism.