The Subnational Political Resource Curse: Allocations, Internally Generated Revenue and Spending Priorities in Nigeria

This study represents an attempt to test for both tax and spending effects in the Nigerian subnational context. It is not the first to do so; Elemo (2012) found that increases in IGR in subnational units led to greater public investment and legislators spending more time on service provision in their constituencies. It however differs in data and methodology. While Elemo looks at data from 1999 to 2009, my dataset covers 1961 (one year after Nigeria received her independence) to 2016. The data is aggregated for all states; it also aggregated over components of IGR and subnational expenditure. The analysis is thus limited in important respects, and my conclusions are accordingly cautious. The nature of the data also informs the use of time series analysis, although there are precedents within the national political resource curse literature. In the initial analysis I use a parsimonious Vector Autoregression (VAR) to test for the dynamic interrelations between allocations, IGR, recurrent expenditure, capital expenditure and GDP per capita. I argue that Nigerian states’ interest in Excess Crude Account revenue is driven by a fiscal devolution stalled by allocation reliance. Allocations allow states to avoid accountability to the center and citizenry. The political curse theory predicts that allocation-reliant states reduce taxation in to reduce scrutiny and increase spending to induce apathy. In the literature also lies a silver lining: if taxes increase, increased participation may induce developmental spending. I model Nigerian state revenues and expenditures to determine whether they operate in line with these predictions. My strongest finding is that allocations displace local revenue.