FOUNTAIN UNIVERSITY OSOGBO

COLLEGE OF MANAGEMENT AND SOCIAL SCIENCES

DEPARTMENT OF ECONOMICS

Academic Year 2019/2020 Second Semester

Course Title: Public Sector Economics II Course Code ECO 316 2 units

Lecturer: Taofeek Olusola AYINDE (Ph.D.)

E-mail: olusolaat@gmail.com, ayinde.taofeek@fuo.edu.ng Telephone: 07063357968

CONTENT/DESCRIPTION

Fiscal Federalism, The Theory of Grant and its roles in economic development; Incidence of tax:
Division of Functions, Revenue Allocation in Nigeria; Fiscal policy: The Nigeria Experience in
Budget Evaluation and budgeting for efficient economic management. Public Debts Management
in Nigeria

Week I: FISCAL FEDERALISM

Definitions of Federalism and Fiscal Federalism

 Federalism is a political concept in which the power to govern is shared between national,
states and local governments, creating what is often called a federation (Arowolo, 2011,
Akindele and Olaopa, 2002).
 Federalism is a political concept in which power to govern is shared between national, and
subnational governments creating what is often called a federation (Arowolo 2011,
Akindele and Olaopa, 2002).
 Arowolo (2011, p.4) states that “It is a political theory that is divergent in concept, varied
in ecology and dynamic in practice”.
 According to Vincent (2001), the concept of federalism implies that each tier of
government is coordinate and independent in its delimited sphere of authority and should
also have appropriate taxing powers to exploit its independent sources of revenue.
 Fiscal federalism is a byproduct of federalism.
 Fiscal federalism is part of broader public finance discipline. The term was introduced by
the German-born American economist Richard Musgrave in 1959.
 Fiscal Federalism deals with the division of government functions and financial relations
among levels of government.
  Putting it differently, fiscal federalism mirrors the amount of fiscal autonomy and
responsibility accorded to subnational government.
 Summarily, Fiscal Federalism refers to the fiscal arrangements as a result of the federal
system.
 In fact, it is a system of revenue allocation formula put in place to enable all levels of
government perform their constitutionally assigned duties efficiently and effectively.
 Fiscal Federalism is seen as part of worldwide ‘reform’ agenda that are supported by the
Bretton Woods institutions such as the World Bank and the International Monetary Fund
(IMF).
 Fiscal federalism is concerned with “understanding which functions and instruments are
best centralized and which are best placed in the sphere of decentralized levels of
government” (Oates, 1999).
 Fiscal federalism is a general normative framework for the assignment of functions to the
different levels of government and appropriate fiscal instruments for carrying out these
functions (Arowolo, 2011).
 It is a set of guiding principles or concept that helps in designing financial relations between
the national and subnational levels of government, while fiscal decentralisation is the
process of applying such principles (Sharma, 2005).
 Fiscal federalism concerns the division of public sector functions and finances among
different tiers of government (Ozo-Eson, 2005).
 Fiscal federalism demands that each level of government should have adequate resources
to perform its functions without appealing to the other level of government for financial
assistance (Wheare, 1963)

Week II: THEORY OF GRANTS AND ECONOMIC DEVELOPMENT

A government grant is a financial award given by the federal, state or local government authority
for a beneficial project of some sort. It is effectively a gift and it does not include technical
assistance or other financial assistance such as loan or loan guarantee, an interest rate subsidy,
direct appropriation or revenue sharing. The grantee is not expected to repay the money.
Government grants help fund ideas and projects providing public services and stimulating the
economy. There are various guiding principles; constituted into the theory of government grants,
that will be discussed with the students.

Week III: INCIDENCE OF TAX

Tax incidence is an economic term for understanding the division of a tax burden between parties.
Tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare.
The tax burden has to do with the person that directly or indirectly bears the brunt of the
compulsory levy imposed by the government. For PAYE, the salary earner directly bears the brunt
of the taxation while for indirect taxes, the brunt of taxation is determined by the elasticity of
demand for the goods in concerned. In effect, the incidence of taxation for both the direct and
indirect taxes would be discussed with the students.

Week IV: THEORIES OF TAX

The theories of taxation relate to the major criteria that a good tax must meet in order that the
objective for which the compulsory levy was imposed was achieved. These criteria include
certainty, ability to pay, convenience and economy. These criteria will be discussed in details and
implications for welfare and economic development will be drawn.

WEEK V: REVENUE ALLOCATION

Generally, revenue allocation can be done vertically (allocation to the three tiers of government)
and vertically (allocation among the State governments and local governments). Revenue
allocation is the method of sharing the centrally generated revenue among different tiers of
government and how the amount allocated to a particular tier is shared among its components for
economic development. Historically, Nigeria has employed series of principles in sharing its
centrally generated revenue since independence. Few among these principles include derivation,
basic needs, population, landmass and terrain, fiscal efficiency and absorptive capacity.

WEEK VI: PUBLIC DEBT

Public debt is any financial obligation (such as bonds and loans) assumed by the government,
where it agrees to make interest and principal repayments in certain dates. Public debt can be
categorized as internal debt and external debt. A broader definition of government debt may
consider all government liabilities, including future pension payments and payments for goods and
services which the government has contracted but not yet paid. Government create debt by issuing
government bonds and bills.
WEEK VII: BUDGET EVALUATION AND MANAGEMENT IN NIGERIA
A budget is a legal instrument that empowers governments to collect revenue and incur
expenditure. For proper evaluation of budget, it must pass through a process and go through certain
cycle and phases. Key actors in the budgetary process include the Ministries, Department and
Agencies (MDAs) of government, the budget office, the legislature and the Presidency. The
environments for the evaluation of government budget are the political environment, economic
environment, social environment, legal environment and the international environment.

WEEK VIII: MID-SEMESTER ASSESSMENT

Students will be examined in the areas that have so far been covered in the Semester. This will
afford students an opportunity of a revision of all topics that have already been taken.

WEEK IX: PUBLIC SECTOR PROJECT ANALYSIS

A project is any economic undertaking that requires money, time, resources and efforts. Generally,
projects are divided into private and public projects. The basic essence of private project is profit
and welfare maximization while major objective of public project is welfare maximization. The
objective of these projects will determine how it should be analysed and evaluated. To analyse
public project, the method of cost-benefit analysis (CBA) is prevalently used. This approach has
to do with ranking government projects and the implementation in relation to the amount of
resources available are undertaken. The CBA estimates and totals up the equivalent money value
of the benefits and costs to the community of projects to establish whether they are worthwhile.
This means that all benefit and costs of a project should be measured in terms of their equivalent
money value and in particular time.

WEEK X: CONTEMPORARY ISSUES IN PUBLIC FINANCE

Contemporary issues in public finance includes the sustainability of public debt, the medium-term
expenditure framework (MTEF), Sustainable public revenue and diversification efforts.
WEEK XI: CLASS PRESENTATION
The students are given researchable topics to undertake and present to the class. This accounts to
discuss contemporary issues in public finance and other areas of the entire lecture during the course
of the semester.

WEEK XII: REVISION AND CLASS TUTORIALS

The final week of lecture is to provide a general overview of what was discussed during the course
of the semester. Students would be expected to ask questions in any of these areas and better
insights are to be provided for clarity and proper understanding.

RECOMMENDED TEXTS

1. Public Finance and International Trade. M. L. Jhingan. Vrinda publications (2009)

2. Public finance by H. L. Bhatia 28th edition (2017).
3. Public Finance, Principles and Practise by Rotimi Ajibola 3rd Edition.

REQUIREMENTS

 Attendance is compulsory for all registrants for the Course

 To be qualified to write the examination for the course, a minimum of 70% attendance
must be obtained by a student
 A mid-semester evaluation as part of the Continuous Assessment is mandatory
 Assignments must be submitted online
 An end of semester evaluation (online) by every student is required to be able to register
for the succeeding semester or access to examination results.

GRADING SYSTEM

Mid-Semester Evaluation 15%

Assignment 15%

Attendance 10%

Examination 60%