Fiscal Decentralization, Subnational Accounting Quality, and Local Public Service Delivery in Nigeria

This study provides a comprehensive empirical analysis of the relationships among fiscal decentralization design, subnational accounting quality, and local public service delivery outcomes across Nigerian states and local governments, contributing an original institutional and accounting perspective to Nigeria's long-running federalism debate. Fiscal decentralization, which devolves revenue and expenditure authority to subnational governments, is theorized to improve allocative efficiency and service delivery by bringing government closer to citizens. However, the realization of these benefits depends critically on the accounting and accountability systems that govern subnational resource management. Nigeria's fiscal decentralization framework, characterized by vertical revenue sharing from the Federation Account and limited subnational revenue autonomy, provides a rich institutional context for examining these dynamics. This study constructs an original subnational accounting quality index for all 36 Nigerian states and the FCT using data from annual financial statements, Office of the Auditor General reports, and IPSAS compliance assessments for the period 2015 to 2023. Fiscal decentralization is measured using revenue autonomy ratios, expenditure assignment completeness, and intergovernmental transfer dependency indices. Service delivery outcomes are assessed using education, health, and infrastructure provision composite indices from the National Bureau of Statistics. Two-stage least squares panel regression and instrumental variable estimation address endogeneity of accounting quality and decentralization outcomes. Results establish that subnational accounting quality is the decisive mediating variable in the decentralization-service delivery relationship, with decentralization generating positive service delivery outcomes only above a threshold level of accounting quality. The study contributes an original Nigerian Subnational Accounting Quality-Service Delivery Threshold model and recommends a constitutionally mandated minimum accounting quality standard as a condition for full fiscal decentralization to local governments.

Keywords: fiscal decentralization, subnational accounting, service delivery, Nigerian states, IPSAS.