Page 26 - CITN 2017 Journal

2. REVIEW OF LITERATURE AND LOCAL GOVERNMENT
ADMINISTRATION

2.1 Literature Review
There is a wide and growing body of literature on fiscal behaviour of sub-national
governments with a view to examining ways in which there statutory role could be
effective. A strand of literature focuses on revenue mobilisation of local governments and
states alike while others concentrate on identifying efficient expenditure plans for these
levels of governance. In this section some evidence on state of knowledge on local
government authorities' fiscal behaviour is discussed.

Wolman and Goldsmith (1987) provides a review of the fiscal behaviour of local
governments when there is revenue shock due to slow economic growth, in a cross-country
framework over 1979 and 1982. The authors observed that intergovernmental transfers to
sub-national governments tend to reduce when national growth is slow, and revenue
suffers. The findings of the study show that fiscal behaviour varied across the countries
examined. A greater number of local governments collected higher sum of revenue from
both tax and non-tax sources during transfer shortfalls and did not experience revenue
reduction in real terms. In sum, local government tends to adjust both expenditure and
revenue in response to sluggish growth in the economy, and the difference between federal
and unitary governments is insignificant.

In another attempt, Holtz-Eakin, Tilly & Rosen (1993) find the current revenue stream to
be the key determinant of expenditure of sub-national governments. The study suggests
attitudes among local authorities as tending towards largely non-ricardian in orientation.
Similarly using the Scandinavian countries of Demark, Sweden and Norway Borge,
Dahlberg & Tovmo (2001) observe that one (Denmark) of all the economies studied has its
local governments following permanent income in making fiscal spending decisions.
A study by Nai-Ling & Bennis (2013) examine whether local governments in Taiwan
attempt to maximise revenue in order to meet their expenditure needs, given the extent of
autonomy these sub-national economies enjoy. The findings from the empirical exercise
reveals that local governments in Taiwan have less incentives to raise revenue through high
tax rates or other source of revenue, but would rather depends on the central government
for a higher amount of statutory allocation. Also, as evidenced in their study, Nai-Ling and
Bennis argue that local governments in Taiwan have potential to be fiscally accountable
and to be irresponsible. Moreover, the authors claim that political factor play a dominant
role in the effort of local government to raise autonomous revenue to meet constituents'
growing expenditure.

In 2015, Mohammed, Ahmed & Salihu investigate the nexus between expenditure and
internally generated revenue of local governments in north eastern state of Adawama,
Nigeria. In a panel data analysis over 2003 - 2012 through a pooled regression technique,
the study indicate a significant relationship between classes of expenditure and the local
government's generated revenue, and implicitly implies that revenue and expenditure
seem to co-move.

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