Revenue Allocation Formula and Fiscal Equity Among Nigerian States

This study examines the implications of Nigeria's revenue allocation formula for fiscal equity among the 36 states of the federation. Revenue sharing from the Federation Account remains the primary fiscal mechanism through which resources from oil production are redistributed across Nigerian states. The current formula, which combines population, equality of states, land mass, terrain, and derivation principles, has been the subject of ongoing political and academic debate regarding its fairness and developmental outcomes. This study relies on secondary data sourced from the Revenue Mobilization Allocation and Fiscal Commission, the National Bureau of Statistics, and state-level budget documents for the period 2019 to 2023. Fiscal equity is assessed using per capita revenue receipt, human development index scores, and poverty headcount ratios across states. Correlation analysis and descriptive comparisons are applied. Findings reveal significant fiscal disparities among Nigerian states, with oil-producing states in the South receiving substantially higher per capita allocations than many northern states due to the 13 percent derivation principle. However, correlations between revenue receipts and development outcomes were weaker than expected, suggesting that fiscal capacity alone does not translate into equitable service provision. The study concludes that the revenue allocation formula requires comprehensive review to balance derivation equity with development need. It recommends the establishment of an independent technical commission to redesign allocation principles based on transparent developmental impact metrics.

Keywords: revenue allocation, fiscal equity, Nigerian states, federation account, derivation principle.