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Unconditional federal transfers and state government spending: The flypaper effect in Nigeria and South Africa

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Bibliographic Details
Title: Unconditional federal transfers and state government spending: The flypaper effect in Nigeria and South Africa
Authors: Abdurrahman Isik, Peter D. Golit, Paul Terhemba Iorember
Source: Modern Finance, Vol 1, Iss 1 (2023)
Publisher Information: Modern Finance Institute, 2023.
Publication Year: 2023
Subject Terms: two-step system, unconditional federal transfers, HG1-9999, 1. No poverty, generalized method of moments, Nigeria, flypaper effect, state spending, Finance
Description: The flypaper effect is undoubtedly among the most interesting concepts in subnational government spending behavior. This study is the first attempt to provide empirical evidence on the existence of the flypaper effect in the two largest economies in Sub-Saharan Africa: Nigeria and South Africa. Using the two-step system generalized method of moment’s estimator, our results show that the flypaper effect exists for both state and provincial governments in Nigeria and South Africa. Provincial governments in South Africa are found to be more responsive to positive changes in unconditional federal transfers than state governments in Nigeria. We therefore recommend sen­sitization on the receipt and disbursement of unconditional federal transfers. This will help reduce the illusion or information asymmetry about the use of unconditional federal transfers.
Document Type: Article
ISSN: 2956-7742
DOI: 10.61351/mf.v1i1.46
Access URL: https://doaj.org/article/9dead014d670422991dd390a8759ee0a
Rights: CC BY
Accession Number: edsair.doi.dedup.....7eb0aea0807162c7971bdaa82c8dbee1
Database: OpenAIRE
Description
Abstract:The flypaper effect is undoubtedly among the most interesting concepts in subnational government spending behavior. This study is the first attempt to provide empirical evidence on the existence of the flypaper effect in the two largest economies in Sub-Saharan Africa: Nigeria and South Africa. Using the two-step system generalized method of moment’s estimator, our results show that the flypaper effect exists for both state and provincial governments in Nigeria and South Africa. Provincial governments in South Africa are found to be more responsive to positive changes in unconditional federal transfers than state governments in Nigeria. We therefore recommend sen­sitization on the receipt and disbursement of unconditional federal transfers. This will help reduce the illusion or information asymmetry about the use of unconditional federal transfers.
ISSN:29567742
DOI:10.61351/mf.v1i1.46