Fiscal Federalism, Revenue Allocation And Derivation Principle In Nigeria

Revenue allocation has generated controversy in recent years. The issue has been the allocation between the various tiers of government (vertical allocations) and between resource-rich and resource poor regions/states (horizontal allocation). More recently, another dimension has been introduced to the vertical issue, namely the allocation between the resource-rich regions/states, local government and communities.
           Debates about distribution of national resources within federal systems are not peculiar to Nigeria. However, the Nigerian case is unique because the criteria used so far have not enjoyed wide acceptability. Every government in Nigeria has tried to address the problem but end up without solution. One general observation is that changes in the formula are often closely associated with the type of government in power. Constitutional government tended to adopt formulas which are closer reflection of the aspirations of the wider sections of the society than was the case with military government e.g the 1963 constitution and the 1981 Revenue Allocation Act.
       Economic theory provides some guidance on ways to bring about workable intergovernmental fiscal relations. The decentralization theorem suggests that local provision of service allows greater responsiveness to the preferences and needs of local people. The mature federal states allow states where there are resources to control their resources e.g  in the USA, the state of Alaska owns all the lands in the state currents producing oil and collects over $1.1 Billion annually in royalties on production on its public lands
      The crucial question is, can the resources in Nigeria be controlled against the background where the resources are unevenly distributed? some argue that the control should be spread evenly. Others argue for resource retention by the areas where the resources is found. Looking at both arguments, one can say that there are two options open for Nigeria in relation to fiscal federalism and resource control : (a) allow greater control by states over natural resource management and royalties; and (b) design revenue-sharing formula that would allow oils-producing areas have greater share of the resources.