CAUSALITY ANALYSIS OF INTERNALLY GENERATED REVENUE, CAPITAL EXPENDITURE AND FISCAL STRESS IN THE NIGERIAN LOCAL GOVERNMENT

Abstract

Fiscal stress is the difference between internally generated revenue and the total expenditure. Whether internally generated revenue, and capital expenditure of government explain the phenomenon of fiscal stress still remains a puzzle particularly in the Nigerian public sector. This study investigates the causal link between internally generated revenue, capital expenditure and fiscal stress in the Nigerian local government between 1993 and 2020. The Toda and Yamamoto Granger non-causality test was applied to the annual time series obtained from Central Bank of Nigeria’s statistical bulletin and the results indicate that capital expenditure has significant effect on fiscal stress in the Nigerian local government, with a unidirectional causality running from capital expenditure to fiscal stress. However, there is no causal relationship between internally generated revenue and fiscal stress in the Nigerian local government in the study period. It is therefore concluded that capital expenditure is a determinant of fiscal stress in the Nigerian local government. There is therefore the need for the Nigerian local governments to properly harness its capital expenditure and resources towards boosting their revenue-generating capacity. In managing fiscal stress, particular attention should be paid to the capital expenditure incurred by the local government in Nigeria.

Keywords

• captal expenditure;
• fiscal stress;
• local development;