Sources of State Revenue and State Effectiveness: The Nigerian Experience

Abstract

Ineffectiveness of states has been linked to poor fiscal-social contract between states and her citizens which is a consequence of how states raise her revenues. Hence, this paper examines the relative impacts of earned and unearned revenues on different measures of state effectiveness in terms of provision of basic public goods and development of economic and political institutions in Nigeria over the period 1996 to 2018, using Autoregressive Distributive Lag (ARDL) estimation technique. The paper found that, on one hand, an increase in earned revenue instigates improvement in provision of health care, while increase in unearned revenue had no significant impact on provision of health. On the other hand, a one-percent (1%) increase in earned revenue had a greater impact on educational enrollment than a 1% increase in unearned revenue. Increase in earned revenue increases state effectiveness while increase in unearned revenue reduces state effectiveness. The paper concludes that, the effectiveness of Nigerian government in provision of basic public goods and development of strong economic and political institutions might improve if government increases their financial resources through taxes than increase in oil revenue.