Intergovernmental Fiscal Transfers and Capital Development Spending in Local Government: Panel Evidence from Nigeria

This study empirically investigates the relationship between intergovernmental fiscal transfers and capital development spending patterns in Nigerian local government areas using panel data spanning the period 2018 to 2024. A central concern in Nigerian fiscal federalism is whether statutory allocations to local governments translate into capital investments that directly improve community development, or whether they are largely absorbed by recurrent administrative expenditure, thereby generating a weak link between resource receipt and developmental outcomes. Guided by the Fiscal Transfer Theory and the Flypaper Effect Hypothesis, this research analyzes panel data from 100 local government areas drawn from twelve states across the six geopolitical zones. Secondary data includes Revenue Mobilization Allocation and Fiscal Commission allocation records, local government financial statements obtained from state ministries, and National Bureau of Statistics development indicators. Panel regression analysis with fixed and random effects estimation is applied. Primary data supplements the quantitative analysis, collected from 150 respondents including local government finance officers and state planning commission officials. The study addresses an important methodological gap by applying panel econometrics to sub-national fiscal behavior in Nigeria. Findings are expected to confirm the presence of a flypaper effect, whereby transfer income stimulates public spending above what equivalent increases in private income would generate, but that a disproportionate share flows into recurrent rather than capital spending. Recommendations include conditional grants tied to capital expenditure targets and fiscal reporting reforms. Keywords: Intergovernmental fiscal transfers, capital development spending, local government, panel data, Nigeria.