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

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  • Ikechukwu Andrew Mobosi

    (University of Nigeria Nsukka)

  • Patrick Onochie Okonta

    (University of Nigeria Nsukka)

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.

Suggested Citation

  • Ikechukwu Andrew Mobosi & Patrick Onochie Okonta, 2025. "Revenue structure and budgetary choice in Nigeria: implication for fiscal sustainability of the states government," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 32(3), pages 828-850, June.
  • Handle: RePEc:kap:itaxpf:v:32:y:2025:i:3:d:10.1007_s10797-024-09851-y
    DOI: 10.1007/s10797-024-09851-y
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    More about this item

    Keywords

    Fiscal policy; Sustainability; Budgetary choice; Revenue structure; Nigeria;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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