FISCAL NEUTRALITY HYPOTHESIS: AN ANALYSIS OF THE NIGERIAN LOCAL GOVERNMENT REVENUE AND EXPENDITURE

Abstract

There is yet to be a consensus on government expenditure and revenue nexus. The debate revolves round four major arguments, namely, revenue-spend hypothesis, spend-revenue hypothesis, fiscal synchronization hypothesis and fiscal neutrality hypothesis. The fiscal neutrality hypothesis postulates lacks of causal relationship between revenue and expenditure of the public sector. This study specifically examines the validity of the fiscal neutrality hypothesis in the Nigerian Local Government. The extent to which this hypothesis is true or false in the Nigerian Local Government (LG) deserves empirical investigation considering the role of the tier of government at ensuring grassroots development. Hence, this study sets out to test the fiscal neutrality hypothesis in the LG of Nigeria, using a quarterly data from 1993Q1 to 2019Q4. The data were sourced from Central Bank of Nigeria’s statistical bulletin and analyzed using pairwise Granger causality technique after testing for unit root and cointegration. This therefore study upholds the fiscal neutrality hypothesis in the Nigerian LG, having confirmed no causal relationship between expenditure and revenue in the Nigerian LG. It is high time that fiscal synchronization of Local Government revenue and expenditure be vigorously pursued by the government through various reforms.

Keywords

• fiscal neutrality hiphothesys;
• local government;