Revenue structure and budgetary choice in Nigeria: implication for fiscal sustainability of the states government

Ikechukwu Andrew Mobosi and Patrick Onochie Okonta ()
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Ikechukwu Andrew Mobosi: University of Nigeria Nsukka
Patrick Onochie Okonta: University of Nigeria Nsukka

International Tax and Public Finance, 2025, vol. 32, issue 3, No 7, 828-850

Abstract: Abstract This paper examines the effects of revenue structure and budgetary choice on the fiscal sustainability index of the 36 state governments in Nigeria for the years 2012–2020, using a two-step Generalized Methods of Moments (GMM) estimation approach. Preliminary results suggest that out of 36 states, Lagos and Rivers States are Nigeria’s most financially viable states within the sample period. Edo, Kano, Delta, and Ogun states are the third, fourth, fifth, and sixth most economically viable states, with Osun occupying the bottom (36th) position in Nigeria. The paper further finds that the fiscal viability index has a positive spillover effect that runs from the past to the present, suggesting that states with stable fiscal policy are likely to sustain their fiscal policy structure. Similarly, the budgetary choice variable has a positive but statistically insignificant effect on the fiscal sustainability index. Revenue Structure has a negative and statistically significant impact on the fiscal sustainability index. Further research reveals a bidirectional causal relationship between the state government’s budgetary decisions (the Annual Operating Budget, or AOB) and the fiscal sustainability index (FSI). Based on the above results, the paper recommends fiscal policy reform that enables diversification of revenue sources and stringent management of IGR by the state government, with high transparency.

Keywords: Fiscal policy; Sustainability; Budgetary choice; Revenue structure; Nigeria (search for similar items in EconPapers)
JEL-codes: E62 H61 H71 H72 Q01 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10797-024-09851-y

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