IMPACT OF INTERNALLY GENERATED REVENUE ON BUDGET IMPLEMENTATION IN SOUTH WEST NIGERIA BY AREMU

IMPACT OF INTERNALLY GENERATED REVENUE ON BUDGET IMPLEMENTATION IN SOUTH WEST NIGERIA

BY
AREMU, VICTORIA BAMITALE

PG/ACC/16/150

BEING A PROPOSAL PRESENTED TO THE DEPARTMENT OF ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES, EKITI STATE UNIVERSITY,
ADO-EKITI

IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE (M.SC.) DEGREE IN ACCOUNTING

SUPERVISOR: Dr. F.O OLAOYE

MAY, 2018

CHAPTER ONE
INTRODUCTION
Background to the study
The role of budget in an economy cannot be overemphasized, given the fact that budget is an important economic instrument of national resource mobilization, allocation and economic management (Ekankumo&Braye (2011). It is an important economic instrument for facilitating and realizing the vision of government in a given fiscal year. A budget has to be well-designed, effectively and efficiently implemented, adequately monitored and its performance well evaluated (Olomola, 2012; Omolehinwa, &Naiyeju, 2011). Budgeting begins with the identification of a limiting factor (revenue) in a public sector, and because of the limited nature of resources to fund public sector expenditures, budgeting systems exist in order to determine the best use of limited resources and the most appropriate way to allocate funds (Ayinde, 2006). According to Dickmeyer (2004), a budgeting system is not a decision system; it is a system for implementing decisions, nevertheless, each budgeting system shapes and informs decisions on the allocation of resources to tasks and functions, on the investment of resources in new ventures, and on the ceasing of existing activities. Once the decisions are made, much of the implementation is done through the allocation of resources that controls or give incentives to various actions of participants in the organization, how effective a budgeting system is depends on how successful the organization is in tendering towards the achievement of its goals and objective. As observed by Olomola (2012) budget process in most developing countries is always been fraught with monumental abuses such poor implementation, non-release, partial release and delay in releasing approved funds for budgeted expenditure. It has been well observed that a quarter to which funds are related may end before the related funds are made available. Clearly, this has negative implications for institutional planning and management as well as the overall impact of the budget on development and welfare of the people.
As crucial as budgeting is to the management of an economy, it implementation has been impeded by fluctuating revenue base has been identified as one of the major factors limiting budget implementation both in developed and developing countries. According to Norton and Elson (2002) budget process and implementation in less developed countries stems among other things from reliance on inconsistent revenue generation system as well as lack of accurate revenue and expenditure projections. As observed by Olomola 2009 also budget implementation in less developed countries especially African countries seems rather opaque than transparent. Buttressing his point he emphasized that the percentage of appropriated funds disbursed to most government quarters is high inappropriate to foster full budget implementation, he established that this appropriation varies from quarters to quarters stressing that while some units gets about full appropriation some get less due to the fact that the guidelines exemplified by the appropriation bill are often time not doggedly followed during implementation
Discussions about internally generated revenue are not only topical, but likely to heighten in the coming years. This is because revenue generation in undoubtedly the nucleus and the path to modern development(Adenugba&Chike, 2013). The focus of most government at state or country level especially among developing countries had been tilted towards developing strategies for raising the level of internally generated revenue needed, which is a necessary tool for sustaining improved growth and development. The importance of more internally generated revenue in most developing countries stems on overdependence of single product highly susceptible to external shocks and vagaries. This is particularly so among hitherto commodity-dependent countries. With commodity prices falling below what is required to balance budgets in many countries, the search for alternative and/or complementary sources of revenues is likely to intensify in the years ahead. This is more so for Nigeria and the component States (Sodipo, 2015)
Kiabel and Nwokah (2009) submitted that the need for state governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance. This need underscores the eagerness on the part of state governments to look for new sources of revenue or to become aggressive and innovative in the mode of collecting revenue from existing sources. The increasing cost of running government coupled with dwindling oil revenue in the country, led various state governments in Nigeria to formulate strategies to improve their revenue base in order to be able to foster effective budget implementation. Premise on this background, the study set out to analyze the nexus between internally generated revenue and budget implementation of southwestern states in Nigeria.

Statement of the Problem
Over the years Nigerian fiscal federalism has been plague by declining revenue, especially oil revenue due to plummeting global oil price. Decline in oil revenue due to volatile global oil market has become one of the major concerns for state dependence on revenues accruing to the federation account(Sodipo, 2015). Without mincing word issues surrounding options, capacity and opportunities to raise internally generated revenueshas continue bother the interest policy maker across states of the country, with A number of the revenue line items assigned to States by the Constitution are yet to be developed enough to yield robust revenues to them. Likewise, the capacity to harness the revenue sources and collect what is needed is limited almost in all States. With significant revenue sources in the hands of the federal government therefore, many States depend on transfers from the Federation account for as much as 80 percent of their fiscal resources, and this had hither-to affected the capacity of the States to run the most basic machineries of government without the monthly allocation (Ibeogu&Ulo, 2015; Sodipo, 2015)
Following the plunge in crude oil price since 2014,governments across Nigerian state has been experiencing fiscal crunch, with significant decline in federally collected revenues and consequently amounts of federal transfers to States. This poses significant challenges to the State governments in managing their budgets as a significant reduction in revenue hampers the ability of State governments to deliver basic public services (education, health, and others) to citizens. The situation is particularly acute in States where internally generated revenue is low. Such States have been in arrears of civil servants? salaries, pension, suppliers and contractors? payment for several months. Recently, States using the NGF platform requested for urgent financial support from the federal government. While the request was granted, they were advised to improve efficiency of public spending by cutting waste.

A look at the performance of State budget over time reflects poor budget performance, and this had continued to impede thesustenance of desired level of growth and development in the country (Omopariola, 2011). The country’s successive budgets have been in most cases deficits, and this contributes immensely in worsening the socio-economic problems in Nigeria, such as high inflation, poverty, unemployment, income inequality, adverse balance of payments, low standard of living etc. The menace of poor budget implementation has continue to hamper budget delivery in most states of the country.
In Nigeria quite a number of empirical investigations had been conducted over time on the subject matter ofinternal revenue generation at national, state and local government levels. For instanceAdenugba and Chike(2013) analyzed the effect of internal revenue generation on infrastructural development in Lagos, Olorungbemi (2015) examined the connection between revenue generation and government administration in Ijumu local government area of KogiState. Nnanseh and Akpan (2013) analyzed the nexus between internally generated revenue and infrastructural development of AkwaIbom state, Kiabel and Nwokah (2009) analyzed boosting internally generated revenue by state governments in Nigeria,Ekankumo and Braye (2011) examined how to stimulate internal revenue by state governments in Nigeria. Ibeoguand Ulo (2015) assessed internally generated revenue in the local government system and sustainable community development in Nigeria. On the other hand several investigation had been conducted on the subject matter of budget implementation(see Arogundade;Olaoye, 2016; Onyiah, Ezeamama, Ugwu, ;Mgbodile, 2016;Oladele and Olaoye 2016; Ekhator and Chima, 2015;Egbide, Adeyemi and Iyoha, 2014;Ibanichuka;Oyadonghan, 2014; Ogujiuba and Ehigiamusoe, 2014; Obara 2013; Onaolapo and Olaoye2013; Edame;Ejue, 2013). Gaps identified in literature include the fact that none of past studies on budget implementation does not specifically analyzed the effect of internally generated revenue on budget implementation in the context of southwestern state. Also none of the previous studies was able to establish the dynamic interrelationship between internally generated revenue and budget implementation of states in the southwestern Nigeria. Hence the study set out to investigate the effect of internally generated revenue on budget implementation in southwest states of Nigeria, using both static and dynamic approaches.
Research Questions:
What is the trend of internally generated revenue of southwestern states in Nigeria
What is the impact of internally generated revenue on budget implementation fraction in southwestern state in Nigeria
What is the dynamic effect of budget implementation fraction on internally generated revenue of southwestern state in Nigeria
What is the dynamic impact of capital expenditure implementation on internally generated revenue of southwestern states in Nigeria
What is the dynamic impact of recurrent expenditure implementation on internally generated revenue in southwest Nigeria
Objectives of the Study
The broad objective of the study is to analyze the impact of internally generated revenue on budget implementation in south west Nigeria. Specific objective of the study include to:
analyze the trend of internally generated revenue of southwestern states in Nigeria
examine the effect of internally generated revenue on budget implementation fraction
investigate the dynamic impact of budget implementation fraction on internally generated revenue of southwestern states in Nigeria
determine the impact of capital expenditure implementation on internally generated revenue of southwestern states in Nigeria
investigate the dynamic impact of recurrent expenditure implementation on internally generated revenue of southwestern states in Nigeria
Hypotheses of the Study
H01: internally generated revenue has no significant impact of budget implementation fraction of southwestern states in Nigeria
H02:budget implementation fraction has no significant dynamic impact on internally generated revenue of southwestern states in Nigeria
H03:capital budget implementation has no significant dynamic impact on internally generated revenue of southwestern states in Nigeria
H04:recurrent budget implementation has no significant dynamic impact on internally generated revenue of southwestern states in Nigeria
Significance of the Study
Thus this study will be of immense contribution to answering the question of how government can raise revenue generated internally especially to foster effective budget implementation in southwest states of Nigeria. The study will point attention to sources of internally generated revenue that can be harnessed to boost revenue prospect of the state, and also reflect the level of significance of the impact internally generated revenue on budget implementation, thus provoking the state government towards initiatives that can increase the internally generated revenue of the state, and maximization of utilized resources in the state.
The study will also add value to the existing body of knowledge be pacing a framework of the connection between internally revenue and budget implementation in both static and dynamic context
Scope of the Study
This study covered a period of 5 fiscal spanning from 2007 and 2016. For the six southwest state including Ekiti state, Oyo state, Ondo state, Ogun state, Osun state and Lagos state. The study measured budget implementation using ratio of actual government expenditure to budgeted expenditure of the sampled state for the period covered in the study, and measure internally generated revenue on aggregate, using the actual IGR generated across the state.
Operational definition of Terms
Internal Generated Revenue:
This is money collected by a government through imposition of levies and taxes on facilities, incomes, sales of goods and services, transfers of properties, and other domestic transactions, as opposed to monies collected from duties imposed on imports and other international transactions.
Revenue Generation:
This the total fund generated by government to meet their expenditure for a fiscal year. It includes tax and income generated from all other government owned services.
Budget:
Is an annual financial statement presenting the government’s proposed revenues and spending for a financial year that is often passed by the legislature, approved by the chief executive or president and presented by the finance minister to the nation.
Budgeting:
It is the process of creating a plan to balance government expenditure with its revenue generated for a financial year.
Budget implementation:
It is the actual functioning, performance and execution of a budgeted revenue and expenditure estimation within a set period of time usually one fiscal year
Statutory allocation:
This is the allocation giving to the state and local government according to their status and size either from state to local government or from federal government to state government
Government budget:
Government budget is an annual financial statement presenting the government’s proposed revenue and expenditure for a financial year that is often passed by the legislature, approved by the chief executive or president and presented by the finance minister to the nation.

CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Clarification
2.1.1 Internally Generated Revenue
IGR are those revenues that are derived from within the local government while those revenues from federation account, value added tax, excess crude oil, etc. are regarded as externally generated revenue (Oladoyin, 2004). Buhari (2001) defined IGR as that revenue that derived within the local government various sources. The sources include taxes and levies from shops and kiosks rates, tenements rates on and liquor, license fees, slaughter slab fees, naming of street registration except that of state capital street, right of occupancy fees on land in rural areas, market taxes, motor park levies, domestic animals license fees, wrong parking charges, signboard and advertisement permit fees. The main sources of local revenue are often market and business taxes (Calvo, 1998). Calvo, 1998 further gives examples of a rural district in Malawi, where market fees accounted for 67% of total revenue. Other tax instruments include; levies on property, locally produced agricultural and building produce the remaining percentage (33%). Calvo (1998) concluded that local governments are also engaging in various business projects such as bars, hotels and transports service to increase their independent revenue.
The sources of internally generated revenue as described by Calvo (1998) like bars, hotel etc. may not be adequately used in some local government areas because its contrary to their culture, religions, therefore some factors need to be considered before coming up with new sources of independent revenue. Such factors include culture, environment, government regulations, and cost and benefit analysis of the sources etc. According to Adeniran, Olayinka and Olawale(2013), internally generated revenue are sources through which local governments generate their revenues through their own efforts such as rates, which include property rates, education rates and street lighting. Taxes such as community, flat rates and poll tax. Fines and fees, which include court fines and fees, motor park fees, forest fees, public advertisement fees, market fees, regulated premises fees, registration of births and deaths and licensing fees; and miscellaneous sources such as rents on council estates, royalties, interest on investment and proceeds from commercial activities. Mogues and Benin (2012) sees internally generated funds (IGF) as “own revenues,” “local revenues,” “locally generated funds,” etc. are used interchangeably to refer to the revenues local governments levy through their local tax and fee assignments.
According to Narayan and Narayan, (2005) internally generated revenue is the revenue that local government generates within the area of its jurisdiction. The primary source of local government sustenance is from federation allocation. It is the livewire of a local government, the extent to which a local government can go in accomplishing its goals will largely depend on its internally generated revenue strength. The capacity of local government to generate revenue internally is one very crucial consideration for the creation of a local government council.
According to Babalola (2009), the provision of public schools, public health and public infrastructure require huge government spending, especially in these modern times. Also, state government incurs expenditure for the provision of adequate security, fulfills its commercial functions and administration. Therefore, the need for adequacy of revenue at all levels of government has become imperative, given the expenditure profile of government aimed at reducing poverty, generating employment, boosting growth and creating wealth. State governments now face more challenges in terms of struggling to be less dependent on the Federal government for financial resources. Though, the revenue allocation system mandates that a certain fraction of the Federation Account be allocated to state governments, these funds are not enough to meet expenditure requirements. This is because the size of the account is related to revenue from oil which is subject to fluctuations and the expenditures of state government far exceed available resources. The problem of lack of fiscal transparency as a result of mismanagement of funds, corruption, poor internal control and lackadaisical attitude to government work and property still abounds (Olusola, 2011).
Despite the numerous sources of revenue available to the various tiers of government as specified in the 1999 Constitution of Nigeria, over 80% of the annual revenue of the three tiers of government still comes from petroleum and has been so since the 1970s. However, the serious decline in the price of oil in recent years has led to a decrease in the funds available for distribution to the states. Kiabel and Nwokah (2009) submitted that the need for state governments to generate adequate revenue from internal sources has therefore become a matter of extreme urgency and importance. This need underscores the eagerness on the part of state governments to look for new sources of revenue or to become aggressive and innovative in the mode of collecting revenue from existing sources. The increasing cost of running government coupled with dwindling revenue has led various state governments in Nigeria to formulate strategies to improve their revenue base. Moreso, the 2007-2009 Global financial crises effects in Nigeria further created serious financial stress for all tiers of government. Hardest hit are the state governments, all of whom have experienced unusual reduction in their share of the revenue from the Federation Account.
2.1.2 Sources and challenges of internal revenue of state governments in Nigeria
S/N Revenue Sources Description Challenges
Taxes These are compulsory levies imposed by the state government on individuals, institutions, corporate bodies, expenditures, etc, for which no direct benefits are received. Taxes/Levies Collectible by State Governments includes: Personal income tax: Pay-AsYou-Earn (PAYE); Withholding tax (individuals only); Capital gains tax; Stamp duties (instruments executed by individuals); Pools betting, lotteries, gaming and casino taxes; Road taxes, etc. These constitute major sources of internal revenue to state governments. Mismanagement of Tax Collected.
Lack of public awareness. Human Resource problem.
Bribery and corruption. Non-remittance of income collected.
Lack of public awareness.
Charges and Fees These are imposed on goods and services provided by the state government and they include tuition at state-owned colleges and universities, tolls and transportation charges, hospital charges, parks and recreation fees, solid waste charges, and other fees for the use of government services. Bribery and corruption.
Non-remittance of income collected.
Lack of accountability.
License These include money state governments charge individual for obtaining various types of licenses such as vehicle licenses and other certificates. Licenses have to be obtained to operate hotels, pool- betting, Casinos, etc. Poor internal control measures. Lack of accountability
Earning ; Sales These include the incomes or profits which state governments derive from their investments or business ventures such as state owned hotels, transport business, production outfits, etc. They also include incomes government derive from the sale of government property such as land, houses, vehicles, equipment, etc. Poor internal control measures.
Lack of accountability.
Bribery and corruption.
Non-remittance of income collected.
Inadequate facilities
Rent on government property Most state governments also derive significant amount of revenue from rent paid by people who hire government property such as houses, land, etc. Poor internal control measures.
Lack of accountability.
Bribery and corruption.
Inadequate facilities.
Interests and dividend State governments also get revenue from interests on capital which they lend out to individuals, institutions or Local governments. They also receive dividends on state-owned shares and stocks. Bribery and corruption
Non-remittance of income collected
Fines These include money imposed on law offenders/breakers in the state. Fines are paid in courts and they form part of government revenue. Bribery and corruption.
Non-remittance of income collected
Miscellaneous Apart from the sources of revenue mentioned above, state governments also get revenue from other means. These include agriculture, tourism, transportation, etc. Porous sources.
Poor internal control easures.
Source:Adopted fromOlusola, (2011)
2.1.3 Concept of Budgeting
According to Adams (2013), budgeting is a financial and or quantitative statement prepared and approved prior to a defined period of time of the policies to be pursued by the organization in order to achieve organizational goals and objective. Budgeting is the means of translating financial resources into human commitments. Jae ; Joel (2009) see budgeting as “a form of planning and policy development considering resource constraints”. Resource constraint is the major limitations that hinders organizations from achieving their goals thus organizations ensure that the limited resources are put into proper use to pursue the attainment of goals and objectives translated into the budget, budgeting is the vehicle through which organizational goals and objectives are realized by properly utilizing the available resources. Blumentritt (2006) described budgeting processes to comprise of the appraisal and study of the preceding period’s financial operations results encompassing all predictions for sale, and all expenses as well as the analysis of proposals for capital expenditures, and means of rolling up and rationalizing figures from different functional departments to ensure they meet company-wide profit goals and objectives.
Ekholm&Wallin (2000) asserts that budgets have always contributed majorly to the successful management of an institution be it private or public, that is an essential control system in many organizations. Otley (1978) succinctly describe budget as the central stage of most organizations’ systems of management control. It thus implies that the successful management of the organization revolves around the budget, if a good budget is put in place and properly managed the goals and objective of such organization will be met with more ease, but the reverse will be the case when the budget is not properly managed. According to Achim (2009), the overall purpose of the budget is to keep control of the activity done in the organization by providing a roadmap for future activities and to set a series of goals to be achieved and the means by which to achieve those goals. Riley (2012) highlighted the following to be the purpose of budgeting: control income and expenditure (the traditional use); establish priorities and set targets in numerical terms; provide direction and co-ordination, so that institutional objectives can be turned into practical reality; assign responsibilities to budget holders and allocate resources; communicate targets from management to employees; motivate staff; improve efficiency; and monitor performance.
Archim (2009) identified the following as budget purpose: planning operations that ensure the organizations’ strategic objectives realization; coordinating various activities of different types of subdivisions i.e. coordination of each employee and groups interests; stimulation of managers from all business levels to achieve predetermined goals of each responsibility center; control of current activity, ensuring discipline according to the business plan; and evaluation of plans fulfillment by each responsibility center and their managers.

2.1.4Types of Budgeting System
Different budgeting systems exist which provides organizations with the necessary financial information to make informed decisions on how resources will be apportioned to tasks and functions, new investment, and sustenance of the existing investment. When decisions are taken in an organization, the implementation process is done through the allocation of the resources to the various tasks and functions, the allocation of the resources controls or motivates various actions of participants in the organization. The success of any budgeting system is a function of how well the system has helped the organization in achieving its goals and objectives and by providing stability to the organization (Dickmeyer, 2004). Njogo&Onwumere (2013) opined that diverse countries have diverse methods to budgeting systems and several traditions exist, each with its distinct characteristics in line with the overall administrative culture. Alabiet al. (2013) acknowledged that the apportionment or allocation of resources determines the type of budgeting systems or technique to be used by institutions. (Adams, 2013; Alabiet al., 2013; Bamake, 2012; Kenneth, 2012; Njogo&Onwumere, 2013) identified the following budgeting systems: Zero Base Budgeting Systems (ZBB); Incremental Budgeting System; Performance Budgeting Systems (PBS); and Planning Programming Budgeting Systems (PPBS).
a. Zero Base Budgeting System (ZBBS)
Zero Base Budgeting is a new system of budgeting put in place to assist management of organizations to achieve operational efficiency and also make good use of its allocated resources (Anonymous, 2013). The concept (Zero Base Budgeting) which is commonly used in the United States of Amarica to control its states expenditure during Jimmy Carter presidency was put forward by Peter A. Phyhrr in 1969 and widely accepted all over the world. Phyhrr (1969) defined Zero Based Budgeting as an operative planning and budgeting process which requires each manager to justify his entire budget in detail from scratch and shifts the burden of proof to each manager to justify why any resources should be allocated to that effect. In recent times, several definitions by different authors exist on the concept. Adams (2013) described zero base budgeting as that system of budgeting which begins the budgeting process from a zero situation while justifying each segment of the budget rather than merely adding to historical budgets or actual. Zero based budgeting is a top-down budgeting system where no function is presumed to be indispensable that allocates resources through a function-by-function appraisal (Dickmeyer, 2004). Dickmeyer (2004) states further that the criteria used for the appraisal are communicated from the managerial level down to the office and department heads well refined and suitable for each decision area, and that the department heads justifies the appraisal guidelines for each functions and why resource allocation for that decision package were increased. Adams (2013) stated that each activity is thought of as a mission, it is challenged as to its needs, than as to the required level of activity. Alabiet al. (2013) posited that Zero Base Budgeting entails developing the budget annually at a zero point, a situation whereby prior year expenditure on that activity are not reflected or considered and also adequate reason must be given on paper why an item of expenditure must be considered. Zero base budgeting concept is seen as a means to cut cost by transforming spend into competitive advantage and aligning the cutting cost and growth strategies with the institutional goals (Ankush, 2016). Zero based budgeting assumes current operations to begin from zero level. It involves the allocation of the reserves on each of the activities of government or organization on cost benefit analysis basis. The zero based budgeting system develops the budget from a clean sheet of paper, thus where there is an ongoing activities of prior year, it re-assesses the past years budget at the beginning of the year. According to Ankush (2016), “the zero based approach dictates that the purpose and effectiveness of all spending must be justified from scratch each year”. The zero based budgeting systems is the management tool used in the evaluation and allocation of resources by critically examining the essence of the activities in respect to the institutional goals.
Features of Zero Base Budgeting System
Anonymous (2013) highlights the followings to constitute the features of zero based budgeting systems: the budgeting system highlights on all fundamentals of budgets; the budget is developed based on appraisal on the basis of decision packages and methodical analysis, i.e., in view of cost benefit analysis; planning the activities, promotes operational efficiency and monitors the performance to achieve the objectives.
Adams (2013), Bammeke (2012), Alabi (2013), Adebisi (2005) identified the following to constitute important aspect of zero based budgeting: the designing of a functional plan, which identifies each decision unit; the description of each decision unit as a decision package; the evaluation and ranking decision packages to develop the budget; and the allocation of resources to each of the decision packages. Adams (2013) asserts that central on the zero based budgeting system is the decision package. According to Phyrr (1970), the decision package is a document that classifies and describe a detailed activity in such a manner that management can; evaluate it and rank it against other activity competing for the same or similar limited resources; decide whether to approve or disapprove of it (Adams, 2013).
Advantages of Zero Base Budgeting System
Adams (2013), Anonymous (2012), Bammeke (2012) states the following to be the advantage of zero based budgeting system: evaluation and justification of all activities; adequate utilization of scarce resources at a maximum level by allocating resources to areas of high priorities; it enables operational and efficient cost control with management concentrating on those activities that will benefit the organization at a reduced cost; it helps to identify wasteful activities by reviewing those activities; it provides management with corrective actions where they are ineffective; it ensures the principles of management by objectives; it aids collaboration and harmonization amongst all levels of management; it ensures the adequate examination of each activity in terms of cost benefit analysis.
Disadvantages of Zero Base Budgeting System
The importance of zero based budgeting system to institutions cannot be overemphasized, but however like every other system, there are some disadvantages. Adams (2013), and Bammeke (2012) highlighted the following to be the disadvantage of zero based budgeting: it may cause a major shift in resource allocation; extra paper work is created by decision packages; subdivision of every activity into decision packages is impossible; problems and difficulties may be encountered as a result of the coordination of various activities; bureaucrats often do not trust the approach and therefore, frustrate its effectiveness; in determining decision packages, there is the problem of fixing the minimum level of expenditure; it involves the task of analyzing and ranking of information which a number of public servants find impossible to do, this is further complicated by lack of qualified and competent personnel in most departments and units; lack of, and sometimes unreliable data, may inhibit or undermine the usefulness of the approach to less developed country’s situation; there is need to make accounting structure conform to the zero based structure for the purpose of evaluation and control, it may, however necessitate a general review, overhauling, adding or scrapping activities and functions; it is not so good for recurrent expenditure, it has not been successful in the public sector.
b. Incremental Budgeting System (IBS)
Incremental budgeting system otherwise known as the traditional budgeting systems, is the traditional ways of preparing the budget of public institutions that involves the addition of an inflationary measures into the prior period’s budget. According to Muhlis (2001), Traditional budgeting system is also known as incremental because it considers the existing budget as base for decision-makers to make their estimations and calculations on coming year’s expenditure level. Adams (2013) asserts that incremental budgeting is the budgeting system that places too much emphasis on narrowly defined control and accountability, which involves picking last year’s figures and adding a percentage to arrive at this year’s budget.
Different definitions by different authors exist about the concept but have the same context. Obayan (2006) described incremental budgeting system as a process which takes into consideration an anticipated percentage increase of the previous period’s budget for the new period. Bammeke (2012) defined incremental budgeting as the utilization of past established budgets by adding a subjective percentage to prior year’s budget. Abdullahi (2011) collaborated with the incremental budgeting system being a budget prepared using a previous period’s budget or actual performance as a basis with incremental amounts added for the new budget period. Watoseniyi (1999) posits that the incremental budgeting systems is built on the premise of addition to previous years budget because the budget processes is concern primarily with the increment as the year goes by without decreasing in operations or expenditure which would take place during the next budget year (Abuh&Aliyu, 2013). The percentage added to the prior year’s budget is based essentially on three factors: trend of economic event, inflation and available fund (Adams, 2013; Bammeke, 2012). However this additions come with its resultant effect, which prevents the organization from achieving its primary aim of preparing the budget.
The preparation of the budget using the incremental budgeting system is simple in nature since it is premised on the percentage increase of the previous year’s budget, thus its wide use by the public sector institutions. This position was confirmed by Abdullahi (2007) who stated that the incremental budgeting approach is used extensively in government parastatals because of its simplicity. Accordingly Bammeke (2012) stated that the resulting developments in the budgeting system is worth the following reflections: it is good for recurrent expenditure projections only; the past inconsistency or errors are inherent in the new year’s budget; the technique does not consider the nature of the project.
Advantages of the Incremental Budgeting System
Colin (2010) noted the following shortfalls of incremental budgeting system: easily understood (as it is retrospective), makes marginal or incremental changes and it bargains through compromise; administratively straightforward and thus does not require professionalism; only areas of perceived changes are considered by management and or policy makers; particularly useful where outputs are difficult to define/quantify; and, stable and, therefore, changes are gradual. Bammeke (2012) also pointed out that the incremental budgeting system: suits the country’s level of development where there is scantiness of data; is simple to operate; it guarantees the continuity of project; it is relatively cheaper to produce; it does not require skilled manpower; and does not need excellent statistical resources. Chartered Management Institute (2015) posits that the incremental budgeting can be prepared speedily with petite brainstorming required, it brings about better and easier co-ordination amongst budgets, the budget is stable since little change is required, also fair treatment amongst departments prevents conflicts, it is cheap and less time consuming and the impact of change are easily noticeable.

Disadvantages of the Incremental Budgeting System
The following disadvantages of incremental budgeting systems were highlighted by the Chartered Institute of Management (2015): inadequate review of activities, assumes the stability of activities overtime; does not drive towards cost reduction; it operates under the principle of spending up to the budget to give way for an increased allocation for the upcoming budget period with the mindset of spend it or lose it; since the budgeting system is based on historical cost, there is the tendency of the budget becoming outdated thereby losing its relevance and thus will no longer relate to the current activities neither can it align with the current trend; and questions about and significance and usefulness of the budget to the organization are no longer asked. While Bammeke (2012), noted that incremental budgeting system: results in a continual growth budget totals, related to inflation; fails to fund new programmes of high priority on a sufficiently reasonable scale; allows past errors to be carried forward; does not allow for detailed scrutiny in the budget, thus the budget preparation under this system is not well researched.
Dickmeyer (2004) posits that incremental budgeting does not foster a strategic allocation of resources. Dickmeyer (2004) defined strategic allocation of resources as the configuration of investments, budget increases, budget decreases, and budget eliminations that help move the institution toward its goals. In the view of Colin (2015), incremental budgeting systems has the following shortfalls: it focus more on previous budget than future operational requirements and objectives; does not allow for overall operational and performance review; it does not help managers ascertain budgetary slack often underpinned by data or service provision which is no longer relevant or is inconsistent with new priorities; it encourages systemic sluggishness; it tends to be reactive rather than proactive; and, assumes existing budget lines are relevant and satisfactory.
c. Planning, Programming Budgeting System (PPBS)
This budgeting approach is based on systems theory, output and objective orientation with substantial emphasis on resource allocation, on the principle of economic analysis (Bammeke, 2012). Bammeke (2012) further stated that the planning, programming budgeting system is not based on traditional organizational structure but programmes which involve grouping of activities with common objectives. Adams (2013) described Planning Programming Budgeting System as the analysis of the output of a given program, it is the analysis of alternatives to find the most effective means of reaching basic program objectives. Planning, Programming, Budgeting Systems attempts to merge the strategic planning process with the allocation of funds, it is generally implemented by a top-down approach (Gibson, 2009). Osabiya (2008) defined Planning, Programming Budgeting System as that system of budgeting that provides systematic measures for the appraisal of the goals and objectives, for selecting and planning programming over a period of years in terms of output and resources. In this system of budgeting, resources are allocated based on the cost and the benefit that will accrue the organization, it tends to evaluate the output and relate them to the cost thereof. Osabiya (2008) describing the planning, programming budgeting system notes that the system maintains that fund allocation should be directly linked to the organization goals and objectives. Osabiya (2008) stated further that the core primary purpose of the budgeting system is that expenditures incurred should not at any point exceed the achievable outcome or output.
According to Donvito (1969), the Planning Programming Budgeting System is concerned mainly with major decision-making processes. Donvito (1969) identified that the planning, programming, budgeting system pays attention more on the managerial functions that comes before actual operations are carried out, that while using this budgeting system, the organization can be seen to be performing its managerial role through the following successive stages: planning, programming, budgeting, operations, and evaluation. The first three stages is actually the budgeting system itself as the name implies. The functioning of all the stages are intertwined though distinct in features in assisting the organization to carrying out its operations. Major objective of the PPBS is to unify the planning, programming and budgeting functions. Planning, which is conducted through exploration and investigations, is an integral part of the program formulation process in planning programming budgeting systems. Planning investigates to handpick specific courses of actions which provides the basis for the organization’s overall program. Accordingly, the annual budget is developed directly from the organization’s sanctioned program and financial plan.
Steps in Planning, Programming, Budgeting System
The following are steps or element of planning programming budgeting system (Adams, 2013; Bammeke, 2012; Osabiya, 2008): identification and examination of goals and objectives in each major area of activities; defining the total system in detail, including environment, available resources, the programs and their objectives; analysis of the output of a given program in terms of its objectives; measurement of total program cost, not just for one but also for at least several years; formulation of objectives and program extending beyond the single year of annual budget; analysis of alternatives to find the most effective means of reaching basic program objectives; establishment of these analytical procedures as a systematic part of budget review; development of appropriate measures of performance for the programs of the organizations.
Gibson, (2009), outlined the following steps: establish objectives and goals; develop alternative programs that will accomplish goals; establish resource requirements for each alternative; estimate benefits to be gained from each program alternative; develop an operating plan by selecting from among alternatives; test the long-range fiscal implication of the plan; Compile the annual budget; evaluate the success with which program benefits are achieved; and revise planning standards.
Advantages of Planning, Programming Budgeting System
The planning, programming budgeting system has the following advantages as highlighted (Bammeke, 2012 and Osabiya, 2008): it leads to rapid economic development; it is mainly used in public authorities and government; it ensures rational decision-making and forces those seeking budgetary allocations to consider alternatives; it provides information on the objectives of the organization; it cuts across conventional lines of responsibility and departmental structures by drawing together the activities that are directed towards a particular objectives; it exposes programme that are over lapping or contradictory in terms of achieving objectives; it concentrates on long term effects; it provides information on the impacts that the existing and alternative programmes will have an objective, and the associated programme costs; it enables resources allocation choices to be made on the basis of benefits/cost relationship.
Disadvantages of Planning, Programming Budgeting System
Bammeke, (2012) and Osabiya, (2008) outlined the following to constitute the disadvantages of the planning, programming budgeting system: problem associated with data collection and physical monitoring; difficulty in the installation of the system because of the radical nature of the concept; there may be resistance to change, particularly among the top hierarchy of the institution; re-orientation of the old accounting system to cater for the requirements of the new concept; scantiness of data; and transitional problems at the introductory state; it requires skilled manpower which is not available in most of the developing countries; it is capital intensive in nature and requires the use of computers which may not be available; it requires excellent statistical sources and data storage which are not available in most of the developing countries; it is costly and time consuming; and many activities are of multi-purpose nature and it is always difficult to determine how the costs of such activities should be allocated to a particular output categories.
d. Performance Based Budgeting System (PBBS)
There is no one single definition of performance-based budgeting. Different attempts have been made by several authors to define the concept but there has not being a consensus to that effect. However, Epstein (1984), Snell & Hayes (1993), Garsombke&Schrad (1999) noted that most observers and experts on public budgeting do agree that, generally speaking, Performance Based Budgeting System is the allocation of resources to achieve goals and objectives based on programmes as well as some indication or measurement of work, efficiency, and/or effectiveness (Richard 2003). Kamil, Ahmet, Mehmet, Haluk&Ahme (2000) states that fundamentally, the performance based budgeting system involves the preparation of strategic plans by institutions consisting of its vision and mission as well as the allocation of resources to adequate to match most of the operations they seek to accomplish. Mikesell (1999) suggested that performance budgets are fundamentally the associating of inputs or costs to programme activities and goals. According to Mikesell (1999), performance budgets may, and most often do, contain one or more of the following the elements: workload data (units of activity provided), productivity data (cost per activity), and effectiveness information (level of goal achievement). Alternative Budget Models for Colleges and Universities (2012) opines that performance based budget system allocates resources centered on performance, which is resolute by a number of clear outcomes standards.
Joyce, while admitting that there is no generally accepted definition of Performance Based Budgeting System exists, states that it comprises a sophisticated web of relations, from inputs to outputs, to outcomes, the connecting of resources to results for budgeting purposes. In the same vain, Dawson (1995) describes performance measurement and budgeting as general terms applied to systemic efforts to assess government activity and enhance accountability for progress and outcomes in achieving results (Richard, 2003). The main aim of this approach is to connect performance information with the allocation and management of resources, performance-based budgets need to contain information on the following elements: inputs (measured in monetary terms); outputs (units of output); efficiency/productivity data (cost per activity); effectiveness information (level of goal achievement) (colin, 2010). Performance budgets use statements of missions, goals and objectives to explain why the money is being spent, it is a resource allocation pattern with the soul aim of achieving precise objectives centered on program goals and measured results (Carter, 1994).
Similar to zero-based budgeting, the performance-based approach should begin at a policy level with the organization developing goals and explicit policy objectives. Managers then must develop relevant performance measures which will track the achievement of these objectives. These performance objectives are then integrated with budget preparation to allow for the alignment of spending plans with performance reporting at the time the budget process is initiated. At the end of each budget period performance-based audits can be completed, which measure the results of programmes using the same performance measures produced in the budgeting process. In this way, the approach seeks to avoid the problems associated with trying to establish baselines after the event which gives rise

Features of Performance Based Budgeting System
Richard (2003) identified that performance based budgeting system has four primary characteristics: first of all, it sets a goal, or a set of goals, to which resources are allocated, from the set goals, specific objectives are outlined and resources are then subdivided among them; Secondly it provides information and data on past performance and thereby proceeds to allow for meaningful comparisons between expected and actual progress; thirdly, adjustments to programs are made either at this point or during a future budget preparation cycle to close any performance gaps that may exist; and finally as an ancillary yet important feature the budgeting system provides an opportunity for regular or special (ad hoc) program evaluations. When utilized, these evaluations are valuable in that they give independent and verifiable information to budget decision-makers and programme managers alike.
ICAN (2006), Horngren (2004); Hansen &Mowen, (1997) identified the followings to be the essential features of performance based budgeting system (Okoroafor, 2011): classification of budgets in terms of functions and activities; measurement of work done or output provided by each activity; expressing the budget in a manner that facilitates direct comparison between cost of project and the anticipated income or benefit; and monitoring of actual cost and performance against the budgeted results or expectations.
CIPFA (2009) identifies the following issues as possibly contributing to the slow development of performance-based budgeting: public entities need to be clear about what they are trying to achieve. Hence, there needs to be clear strategic direction in the organization; translating strategic goals and objectives into performance measures can be very difficult. In many public services, outcomes are difficult to measure and there is a tendency to fall back upon less appropriate output and input measures; systems for collecting cost and performance information may need to be developed. Costing out services can be difficult and in particular decisions on how to deal with overheads are problematic; problems may exist in respect of presenting this information to those making decisions on budgets. Information may need to be presented in appropriate formats to a variety of users. If information on performance is separated from accounting operations then this will hinder the ability for it to penetrate decision-making processes associated with the operations; there may be procedural problems caused by failure to change existing budgeting rules and processes. There are often problems in defining who is accountable for performance and managers may fear that they will be reprimanded for failure to achieve published performance targets, and thus may try to avoid being accountable.
2.1.5 Government Budgeting and Budget Implementation
Public sector budgeting has metamorphosed from a sheer statement of estimated revenues and expenditures of government sent to the Parliament for scrutiny and approval into a powerful tool being used for diverse purposes ranging from economic, administrative, social and political. (Douglas 2002 and Rubin, 2000). While several studies such as: Douglas, (2002), Faleti and Darrel, (2012), and Olawale and Anthony, (2010) highlighted the purposes of government budget to include: governance, medium of communicating government policy framework, tool to influence economic direction, financial control document and resources’ allocation pact. Esu and Inyang (2009) as well as Metawie (2005) and (Olomola, 2012) asserted that performance evaluation and performance indicators are the critical issues about government budget. As observed by Hemsen and Van de Stede (2004), the practical or operational purpose of government budget consists of operational planning, performance evaluation, communication of goals and strategy formation. Furthermore, Omolehinwa (2011) and (Olomola, 2012) posited that the specific purpose of public sector budgeting includes: provision of a basis for articulating and working towards the achievement of socioeconomic vision of government; the instrument of pursuing the objective of macro-economic growth and development, economic stability and economic equity; basis of allocating resources of government to strategic areas of priorities; a tool to promote managerial efficacy in government and a mechanism for legislative control over the executive. Metawie and Gilman (2005) observed that public sector organisations around the world face pressure to improve service quality and lower their cost, become more accountable, customer focused and responsive to stakeholders needs. They asserted that for the public sector to attain this enviable height, performance model and practices must be brought to the level of what is obtainable in the private sector. Boland and Fowler (2000) observed that before 1980s and early 1990s performance measure in the public sector was almost an impossibility faced with plethora of challenges. They added that this was informed by the fact that performance measure, performance metrics and evaluation were alien to the public sector.
Government budget in Nigeria has that which could be termed a chequered history and is as old as the colonial rule in Nigeria (Trade Invest Nigeria, 2010, Omopariola, 2011). Omolehinwa (2011) affirmed that government budgeting in Nigeria has passed through different stages from the period before 1977, Ministry of Finance Committee to the Onosode Committee of 1984, Phillips Committee of year 2000 and to the provision of the Fiscal Responsibilities Act, 2007. The Nigerian budgeting system was inherited from British colonial administration. Since independence, the Nigerian budgeting experience has been under both the military and the civilian regimes. Under the military, the exact stages of budgeting procedures may not be really defined. The legislative consideration stage is completely absent, as there was no separate legislative arm of government. As military regimes run unitary governments and operate unified fiscal system, the budgetary process is fairly straight forward and less cumbersome. (Obadan, 2003, Omolehinwa, 2001 and Olaoye, 2008). After fifteen years (1983-1998) of military rule, the Nigerian budgeting system came under the democratic government in May, 1999. The democratic system offers a more complex environment within which decision about the objectives and resource for implementing them take place. The allocation of the public resources is influenced by the interaction of the governmental machinery and the influence of various stakeholders and interest groups that are affected by public expenditure (Mbanefor, 1999). The democratic framework has respect for transparency and accountability in public resource management (Omolehinwa, 2001).
2.1.6 Prerequisites for Effective Budget Implementation
Development Oriented Macroeconomic Policies
The macro-economic analysis and forecasts which form part of the MTEF should not only be sound but must also be people-oriented. It must be geared towards poverty reduction and wellbeing of the people. In this connection, it is necessary to seek and deploy institutional support and complementarities. For instance, it is important to strengthen the National Planning Commission to effectively perform a useful role as far as macro-economic analysis is concerned. Specifically, the NPC should be involved in the conscious transformation of the budgeting horizon from the traditional annual budget to multi-year budgeting and the incorporation of performance measurement information into the budget. The key areas of involvement should include (i) articulation and preparation of the broad macroeconomic framework, (ii) articulation of performance measurement information, and (iii) ensuring proper linkage between development priorities and budget implementation (Abdullahi, 2007).

Reprioritization and Reallocation
It is important for priorities to be properly identified. However, since the conditions circumscribing the setting of priorities are subject to change, it implies that the priorities cannot be cast in concrete. Unlike the annual budgets which cannot adequately reflect resource shifts from lower- to higher-priority use, the MTEF should provide a better mechanism for aligning budgets with policies. This should be seen in the light of policy continuity and refinement for more favourable impact rather than introducing discontinuities and unnecessary diversion of resources Abdullahi, 2011.
Budgetary Discipline
Budget allocations should be based on a hard aggregate budget constraint appropriately derived from what is affordable. The MDAs must live with their budget allocations. This requirement is not difficult to fulfill in Nigeria. In a recent study, it was found that MDAs in principle accept the need to live within their budget. For instance, 38.7% of the responding officials believed that MDAs accept the need to live within their budget and almost never overspend. Another 37.7% of them believed that MDAs make genuine efforts to live within their budgets but sometimes overspend (NISER, 2006). This implies that in the implementation of the budget the level of compliance with stipulated guidelines is reasonably high. However, it is necessary for the government to have a more realistic budget especially with regard to revenue projections (Abdullahi, 2007).
Institutional Conformity
All the institutional players (executive and legislature) that are connected with the budget process must comply with the MTEF as a framework within which expenditure decisions are taken. This pre-supposes that the legislature must be brought into the picture right at the early stage of the budget cycle and not necessarily at the approval stage. Political decisions have a very strong impact on the budget process; but for the impact not to be disruptive, there should be proper understanding and alignment of political and economic forces throughout the various stages of the budget cycle.
Setting Appropriate Parameters
Key inputs into the setting of appropriate parameters must be sought and obtained from all relevant actors. The major parameters include the definition of aggregate expenditure to be used, the relationship between the sectoral breakdown and organizational structure of government, the price basis for estimating future revenue and expenditure, monitoring and outcome indicators etc.
Transparency
The need for transparency is particularly important in an environment where the budgetary process is witnessing radical transformation. There should be mutual trust and accountability among the various actors. Both fiscal and policy transparency should be clearly demonstrated in order to ensure improved accountability by actors engaged in the budget process. By fiscal transparency is meant openness to the public about the structure and functions of government, fiscal policy intentions, public sector accounts and fiscal projections. On the other hand, policy transparency means being open to the public about what government intentions are in a particular policy area, which outcomes are to be achieved and the costs of achieving such outcomes. Moreover, timely and accurate reporting of actual performance with quality of output and results achieved are key aspects of transparency required for effective budget implementation. Availability of good quality and comprehensive data on the budget estimates and actual expenditure is required on a regular basis for meaningful analysis and interpretation by interested parties. This should ensure that budget analysis will generate useful input into policy decision-making for further improvement of the budget process Abdullahi, 2011. This study aims at finding out how the knowledge of implementation of the budget has reduced personnel and overhead cost; improved resource management; and increase the level of productivity and efficiency within the staff of the Federal Ministry of Finance that oversees the budget implementation.
2.2 Theoretical Review
2.2.1 Walker’s Progressive Theory of Budget
Walker was concerned with the standard of living in cities and the ability to pay for it. A city’s standard of living included both the number and quality of government services provided. Walker’s progressive budget theory centered on the premise that the means to decide how to allocate between options was through the “utilitarian ideal” or indifference point in economic theory as applied to government budgets. The indifference point was a measure of current expenditures as an expression of balance between citizen demand and government service provision. Walker saw that budget makers had real problems that could be addressed by systematic study, but the public officers and the economists did not talk to each other. Walker asked: “Can the gap ever be bridged between the high sounding theories of the scholar and the rough and ready methods of the public official?” (Walker, 1930).
The problem of budget distribution is one of mechanics. The final appropriation is the resultant of all the forces in action just as truly as in an analogous case in physics. To understand municipal budget making it is necessary to visualize this tremendous pressure that is being exerted from all sides—the pressure of organized interests, of ambitious department heads, of civic groups, of official prejudices, of the political potency of a low tax rate, even of public opinion where not represented by any of the above. The final budget will be the resultant of the forces and not the outcome of a dispassionate evaluation of the various functions. (Walker, 1930)
Walker advanced her belief that the ideal of marginal utility was desirable, but it needed to be applied according to the “progressive-values” or “human nature values.” The problem was developing a theory that recognized the limits of context and that might be amenable to measurement and application. This indifference point determined by Walker, at least for a start, would be measured from expenditures currently undertaken across U.S. cities. Walker used this based on her assessment of measurement approaches. There were three basic approaches to measure and apply marginal utility theory according to Walker:
In the business world, marginal utility was measured through markets, free competition, and standardized products, but this method does not carry over to government services.
Using a consensus of opinion regarding the varying degrees of utility of different governmental functions might produce a measure of utility, but a general consensus was lacking. Furthermore, a consensus measure would be based on deduction, and it would be considered tautological.
Marginal utility could be approximated by an objective study of existing budgets. This was simpler, cruder, and largely pragmatic. Walker reasoned:
Since a norm of budget distribution cannot be arrived at by deduction, will it not be wise to obtain such help as we can from objective methods? How are cities actually dividing up their appropriations? What is the average budget distribution for the entire country? What is the average for cities grouped according to various classifications? Can any conclusions be drawn from a survey of actual conditions? (Walker, 193). Walker chose the third approach as best to test her assertion that by using marginal utility theory a mean or an indifference point is discernable in the distribution of government budgets. It is here in the “pragmatic” approach that Walker attempted to discern the indifference for city residents and from established measures of services provided. The use of actual conditions and actual data was held to be preferable to measure marginal utility for local governments. Some of the considerations for the approach were detailed: It seems reasonable to suppose that just as markets measure the value of commodities, so we may roughly approximate the marginal utility of a governmental service by the average proportion of the budget that is devoted to it in a number of different cities. If the budgets of a sufficiently large number of the most progressive cities could be analyzed and compared, after variations due to peculiar political or geographical exigencies had been eliminated, certain tendencies would be apparent which would point the way to anorm of expenditures consistent with the state of progress at present achieved by society. This would never be mathematically exact and would probably never be capable of exactly the same application to any two cities. It would simply show limits, more or less imperfectly defined, within which, after proper allowance for the particular situation, certain expenditures should fall. (Walker, 1930) Walker acknowledged that marginal utility theory was an ideal that could not fully be attained. She asserted that the best approximation of marginal utility for cities was first obtained as general measure, or an aggregate, that was not distinctive to the locale or region, and then an indifference point could be made more certain for that region based on local preferences. She argued that even though “at best it represents an approach toward rather than an approximation of the goal,” the effort was worthwhile. The alternative would be to “relinquish the quest for equitable budget distribution” and resign it to the “limbo of in- soluble problems” (Walker, 1930). She refused to concede that budget distribution and the question of proportion was not amenable to study.
2.2.2 Wagner’s Theory of Public Expenditure
Wagner’s theory of public expenditure is named after the German political economist Adolph Wagner (1835-1917), who developed a “law of increasing state activity” after empirical analysis on Western Europe at the end of the 19th century. He argued that government growth is a function of increased industrialization and economic development. Wagner stated that during the industrialization process, as the real income per capita of a nation increases, the share of public expenditures in total expenditures increases. The law cited that “The advent of modern industrial society will result in increasing political pressure for social progress and increased allowance for social consideration by industry.” Wagner (1893) designed three focal bases for the increased in state expenditure. Firstly, during industrialization process, public sector activity will replace private sector activity. State functions like administrative and protective functions will increase. Secondly, governments needed to provide cultural and welfare services like education, public health, old age pension or retirement insurance, food subsidy, natural disaster aid, environmental protection programs and other welfare functions. Thirdly, increased industrialization will bring out technological change and large firms that tend to monopolize. Governments will have to offset these effects by providing social and merit goods through budgetary means. In his Finanzwissenschaft (1883) and Grundlegung der politischenWissenschaft (1893), Adolf Wagner pointed out that public spending is an endogenous factor, which is determined by the growth of national income. Hence, it is national income that causes public expenditure. The Wagner’s Law tends to be a long-run phenomenon: the longer the time-series, the better the economic interpretations and statistical inferences. It was noted that these trends were to be realized after fifty to hundred years of modern industrial society (Bhatia, 2003)
2.2.3 Wiseman-Peacock Hypothesis
This hypothesis was propounded by Wiseman and peacock in the late 1950’sThe hypothesis posited that public expenditure tends to increase in a jerk or steplike fashion, given that in an ideal state some social, economic or otherwise disturbances takes place which create a need for increased public expenditure, which the existing public revenue cannot meet. This theory emphasized that in the early stage of state growth, due to insufficient pressure on public expenditure, the revenue constraint will dominate and restrain expansion in public expenditure of the state, but due to changes brought the disturbance such restrain will give way and public expenditure will increase, thereby making the inadequacy of the present revenue quite clear. The inadequacy of the revenue as compared to the required public expenditure creates an inspection effect, which will make the government to review the revenue position and the need to find solution and adjustment in the revenue generation required to finance the increase expenditure. According to Peacock and Wiseman, disturbances will cause displacement effect, shifting public revenue and public expenditure to new levels. Government will fall short of revenue and there will be an upward revision of taxation. Initially, citizens will engender displeasure but later on, will accept the verdict in times of crisis. There will be a new level of “tax tolerance”. Individuals will now accept new taxation levels, previously thought to be intolerable. Furthermore, the public expect the state to heal up the economy and adjust to the new social ideas, or otherwise, there will be the inspection effect. Peacock and Wiseman viewed the period of displacement as reducing barriers that protect local autonomy and increasing the concentration power over public expenditure to the Central government. During the process of public expenditure centralization, the role of state activities tend to grew larger and larger. This can be referred to the concentration process of increasing public sector activities (Bhatia, 2008)
2.3 Empirical Review
2.3.1 Empirical Review from Developed Countries
Mahmuut and NevinUzgoren (2008), investigated the relationship between the taxation and government expenditure in Turkey. The study covered the period of 23 years spanning from 1981 through 2004 to search for the co-integration relation between two variables. Bounds test techniques was used in carrying out the analysis of the research. The result showed a long run relationship between the two variables. Premise on the result, the study thus concluded that a sudden increase in public expenditures is financed with new taxes in Turkey
Nemanja (2015) analysed government expenditure and revenue of Republic of Serbia. The study examined the linkage between government expenditure and revenue in Republic of Serbia. The study employed data from first month 2003 to eleventh month 2014. The study analysed data using ADF and KPSS unit rot test, descriptive analysis, ARDL co-integration test and VECM. The study revealed that there is unidirectional causality from government expenditure to government revenue in the long run. This implies that increase in government revenue should be followed by increase in government revenue, which implies increase in tax. However, the study recognized that it is extremely hard to collect taxes in Serbia. Thus, the study recommended reduction in government expenditure to reduce budget deficit.
Maeregu (2011), assessed the internally generated fund and its contribution for district development expenditure. The survey was intended to find how effective or not the functional system of IGF mobilization, from the tax collectors view point. The study made use of secondary data generated from the tax officers who has the necessary information on the historical background as regards the operations of the system. The study made use oof descriptive method in establishing the relationships between variables and those methods which are used to evaluate the accuracy of the results. It was revealed that there are a couple of issues needed to be considered if there is a real demand for improving the IGF performance and there by the entire decentralization program. The study gave recommendations that much effort is needed to improve the overall performance of the system. Committed and qualified leadership and personnel along with strong policy and legal backing are needed to restructure the prevailing challenges.
Jorn and Er (2010), checked into fiscal discipline and asymmetric adjustment of revenue and expenditures.The study allows a comparison of the control regime of decentralized government in Denmark with neighbors Norway and Sweden and with similar analyses of US states.The econometric results show that local governments in Denmark respond to shocks by compensating adjustment of tax rates and expenditures. The shock responses tend to be asymmetric, in particular for the income tax. Positive shocks hardly affect the income tax rate, while negative shocks induce higher tax rates. It was concluded that the Danish design of controlling the local public sector avoids fiscal imbalances, but allows a bias towards expansion.
2.3.2 Empirical Review from Developing Countries
Murithi, (2010), examined the relationship between government revenue and economic growth in Kenya. The study adopted a descriptive research design. This study was a case study of one country since only Kenya was involved. The study used secondary data collected from the Central Bank of Kenya, KNBS, KIPPRA, and Ministry of Finance, Public libraries and National Budget and other Government records including import duty, excise duty, income tax and Value Added Tax (VAT) which comprised the tax revenue. In addition, the study collected data on non tax revenue. Collected data was presented using tables and figures. The study concludes that established Income Tax leads to continuous increase in revenue obtained by government. The study further concludes that there is a direct relationship between Income tax and economic growth. The study thus recommended that future studies be conducted on other sources of revenue that the Government can tap to increase its revenue collection. The expenditure of the Government has increased following devolved government that created more offices.
Samuel (2015), examined causality test of the revenue expenditure nexus in Ghana. The study covers the period between the years 1980-2013. A test was carried out to show the relationship between government expenditure and government revenue using the ordinary least square (OLS) method. The short run relationships between the two variables are tested in a Vector autoregressive (VAR) framework and the result shows a very strong long and short-run relationship between the two variables. Granger causality test gives a unidirectional causality running from revenue to expenditure.
Sayed(2016) investigated revenue collection and management in Afghanistan. The study indicates that Afghanistan is fully dependent on international assistance and foreign aid with 43% of Afghanistan’s general budget and 28% of its development budget subsidized by the international community. The result state that if Afghanistan could get to stay out of being dependent, both nationally and internationally can significantly impact Afghanistan’s economy. The greater the focus on customer relations and bringing facilities to taxpayers, the easier it will be for the Government to collect revenue and build a positive public image to the Afghan people.
Cheng-Tsung Lu (2011) assessed the relationships among budgeting control system, budgetary perceptions, and performance. Specifically, the study investigated the relation from budgeting planning, implementing, and controlling perspectives to budgetary perceptions and examined the relationship between the budgetary perceptions and budgetary performance. Primary source of data was employed using stratified questionnaires to university-affiliated public hospitals in Taiwan, 132 budgeting managers were sampled from the population. Empirical results from the study revealed that when budgetary feedback and participation is higher, the department managers’ budgetary motivation tends to be higher, the budgetary attitude more positive, and the propensity to budgetary slack slower, results also indicated that when the department managers have higher budgetary motivation and more positive budgetary attitude, the budgetary performance tends to be higher, it was also observed from the result that when the department manager percepts higher “budgetary usefulness” or “budgetary relevance”, the budgetary attitude tends to be positive.
Chukwu and Aneke (2015), assessed the viability of Nigeria state governments independent of statutory allocations between the period of 14 years spanning from 1999 through 2013. The study employed the ex- post facto research design and used the regression model to determine the causal relationship between states internally–generated revenue and statutory allocations on the one hand, and states total expenditures and total revenues on the other hand. Results of the analysis showed thatinternally-generated revenues and statutory allocations have significant effects on the dependent variables (total expenditures and total revenues) their contributions to total expenditures and total revenues vary significantly. While internally–generated revenues contribute insignificantly to total expenditures and total revenues, statutory allocations contribute maximally to those dependent variables. It was thus recommended in the studythat state governments should begin to direct more efforts toward effectively tapping the potentials of their internal sources of revenue as a safeguard against further fall in oil prices and hence, reduction in statutory allocations.

2.3.3 Empirical Review from Nigeria
Mohammed, Ahmed and Salihu (2015) examined the relationship between expenditure (both Capital and recurrent) and internally generated revenue (IGR) in Adamawa State local governments. The study’s population encompassed the entire twenty one (21) local governments in Adamawa state, the study sample selected the entire population as its sample size. Secondary data was used as data were extracted from local government expenditures (recurrent and capital) and the Internally Generated Revenue for the period of 10 years spanning from 2003 through 2012. Pooled regression was used for the data analysis. Results from the study found a significant relationship between government expenditure and internally generated revenue. Capital expenditure and recurrent expenditure on agriculture and natural resources, roads, rural electrification, market expansion significantly influence the internally generated revenue of the Adamawa State’s local governments. The study therefore recommends that the Local government authorities in Adamawa State should use their resources with high sense of prudence, transparency and accountability in incurring capital and recurrent expenditure for the development of various sectors of their local economies so as to enhance their internally generated revenue. This will reduce dependency on statutory allocation from the federation account
Adesoji and Chike (2013), examined the impact of revenue generation on infrastructural development in Lagos state. The study methodology entailed the use of survey research design and purposive sampling method to select respondents from Lagos State Inland Revenue Office.. Questionnaires and statistical data were instruments used for the study. Descriptive and inferential statistics were the statistical tool used for the analysis. The descriptive statistics involves the use of simple percentages while the inferential statistics involved the use of Spearman’s Rank, which is to show the direction of relationship between variables in the study and to show the scale for the data that is interval. Result showed that there is a positive relationship between internally generated revenue and infrastructural development. The study also revealed the various methods of generating internal revenue, which are the enforcement of tax personnel, contribution, and creating awareness to the public. The findings of the study however show that revenue administration agencies need to be reviewed to generate more revenue in the country
Arogundade and Olaoye (2016), examined the impact of state revenue and expenditure on government budget performance in southwest Nigeria.Secondary data sourced from annual budget of six southwestern states for the period of 15 years covering year 2000 -2014. Techniques of analyses employed in the study include pooled OLS panel analysis, fixed effect panel analysis, random effect panel analysis while diagnostic including restricted f-statistics and Hausman test were employed to select the most efficient ad consistent estimation. The result of the analysis revealed that actual revenue, actual expenditure and budgeted revenue exert positive influence on government budget performance in southwestern Nigeria, while the influence of budgeted expenditure is negative. The study therefore concluded that the true influence of state revenue and expenditure on government budget performance is rooted in the actual budget realizations. Thus the study recommended the need for improved revenue and expenditure estimating methods at state level as well as the need to prune the over-bloated size of government expenditure in order to establish realistic state budgets.
Dagwom, Elizabeth and Ishaya (2016), investigated the impact of revenue generation and utilization on social service delivery in Plateau state between 2006 and 2015. The study made used of descriptive data analyses and Ordinary Least Square (OLS) regression analysis to empirically test the impact of revenue generation on social service delivery in Plateau State. The study finds that revenue generation as a whole has an impact on social service delivery for the period 2006 to 2015 in Plateau State, with majority of the sources of revenue, coming from federation account, capital receipts and other revenue, which are individually not significant in impacting on social service delivery in Plateau State. The study also finds that revenue generated and allocated to health and education sectors were not adequately utilized in relation to total revenue generated for the period 2006 to 2015 in Plateau State. the study recommended among others there should be more focus of utilization of revenue generated on social services capital expenditure in Plateau State to improve the quality of lives of its citizenry by the Plateau State government.
Ehigiamusoe& Umar (2013) examined the role of legislative oversights in budget performance. Survey method of research design was adopted descriptive statistics and analytical approach, the paper analyzed both primary and secondary data, and Primary data were sourced through a survey method involving the use of in-depth interviews and structured questionnaires. Secondary data were derived from Central Bank of Nigeria (CBN) Statistical Bulletins, National Bureau of Statistics (NBS), and the Office of the Accountant General of the Federation (OAGF). The population of the study included all Federal Ministries, Departments and Agencies (MDAs) and all oversight committees in the National Assembly in Nigeria. Simple random sampling technique was adopted to select the MDAs and oversight committees for the study. Fifty (50) Federal Ministries, Departments and Agencies (MDAs) and fifty (50) oversight committees were selected for the fieldwork. The findings of the study revealed that oversight activities have increased tremendously in Nigeria since 1999, but they have not been very effective in reducing corruption and accelerating budget performance of MDAs. The paper therefore recommended policy options on how to utilize legislative oversight activities as instruments for promoting targeted budget outcomes.
Onyiah, Ezeamama, Ugwu and Mgbodile (2016) examined the impact of budget implementation and control reforms of the Federal Government of Nigeria. Particularly, the study analyzed budget implementation’s impact on resource management, level of productivity and efficiency and personnel and overhead costs in Nigeria. The study employed expost facto descriptive research design. The study’s respondents comprised of Accountants and Economists who are in the federal civil service in Enugu state, judgmental sampling technique to select the staff of Budget Office of the federation, Federal Ministry of Finance, Federal Ministry of Lands, Housing & Urban Development and Federal Ministry of Works all in Enugu State. Primary and secondary sources of data were employed; primary data were collected with the aid of a structured 5-point likert scale questionnaires, secondary data were generated from journals, and other scholarly publications. Data collected through questionnaires were analyzed using Analysis of variance (ANOVA) and coefficient of correlation for validation of hypotheses. Findings from the study showed that poor project conceptualization, design or planning practices by Ministries, Departments and Agencies (MDAs) resulted into low resources management. Based on the findings, the study therefore recommended among others that Ministries, Departments and Agencies (MDAs) of government should conduct thorough projects implementation studies on all new projects prior to making submissions to the budget office, It should be made mandatory for an approved detailed implementation plan to accompany every capital project proposal for the annual budget and MDAs should be sanctioned by the government for non-compliance to this plan forthwith..
Jonathan (2014) investigated budget implementation and economic development in Delta State, the study particularly examined how budgets have been implemented in Delta State; investigated the impact of budgets implementation on the economy of Delta State and identified the problems of budget implementation in Delta State. Descriptive research design was adopted; primary and secondary data were sourced for the study. Data was analyzed using statistical tools; simple percentage, graphs, and pie charts. Results indicated that budget indiscipline, poor implementation, bribery and corruption, non-adherence to the budget implementation, guidelines, lack of co-operation by public and private institutions operating in the state, political instability, non-consideration of reasonable suggestions and advice brought forward by interest groups before or during the preparation of the budget, inadequate supervisory gadgets to monitor the operation of the monetary plan and external intervention is responsible for budget failure in the state, the study recommended that strict observance of budget discipline, creation of enabling operational environment, putting in place of adequate supervisory machinery, positive consideration of reasonable suggestions from interest groups, introduction of remedial measures at the appropriate time and the use of accurate data in the cause of preparing the state future budget(s) should be ensured.
Okeke, Chidi and Eme (2017) examined ways of enhancing internally generated revenue. The study focused on current level of revenue generation in the states; identified challenges that have impeded sufficient internal revenue generation in the states; and advanced strategies that will enhance internal revenue generation in the states. The study used secondary information. The study analysed data using descriptive approach. The study revealed that internally generated revenue constitutes just a small proportion of the state finance; the current system of revenue generation is fraught with problems; the revenue base of the states is uneven, so narrow and need to be diversified. Thus, the study recommended establishment of a dependable data base which is accessible; tracking underground economy for revenue generation; and diversification of the revenue base.
Edongbanya and Ja’afaru (2013) investigated the impact of revenue generation on government developmental effort. The study specifically examined the relationship between statutory allocation and development effort; ascertained extent to which value added tax contribute to development effort; assessed the benefit of excess crude account to government projects; and extent to which generated revenue has contributed to the development. The study employed primary data collected from 3 local governments in Kogi state. The study analysed data using ordinary least square. The study revealed that there is significant relationship between statutory allocation and development; value added tax has significant impact on development; excess crude account has significant influenced on development; and there is relationship between generated revenue and capital project. Therefore, the study recommended that the local government chairman should ensure that machinery be in place to generate more revenue internally to enable them do more development projects; and local government authorities should not be over dependent on statutory allocation from the federal government.
Oti, Odigbo and Odey (2016) assessed the fluxional relationship between internally generated revenue and cost of collection in Cross River State, Nigeria. The study focused on the possibility of finding an optimum level of collection. The study collated data from 2007-2014 from state internal, budget and ministry of finance. The data were analysed using descriptive analysis. The study revealed that there is resources gap between the available internal revenue of states and the amount required for development aspiration. Thus, the study recommended that government in Cross River state should develop the internally generated revenue base, promote fiscal prudence in the management of its resources, develop relevant infrastructure, build human capacity, eschew corruption, emphasize cost minimization and employ IMC strategies to educate and sensitize the people of the State to pay their taxes willingly
Oziengbe (2013) examined the relative impacts of federal capital and recurrent expenditures on the Nigerian economy. The study modelled gross domestic product as dependent variable. Capital expenditure and recurrent expenditure were used as explanatory variables. The study collated data for period 1980-2011. The data were analysed using co-integration, error correction model and variance decomposition. The study revealed that there is long run relationship between the variables. The short run impact of capital and recurrent expenditure on gross domestic product was not significant. However, a lag of the explanatory variable has significant impact on gross domestic product. Also, the study revealed that capital expenditure has positive impact on gross domestic product. Recurrent expenditure has negative and greater impact on gross domestic product. Therefore, the study recommended that should allocate larger share of its expenditure to infrastructure and other capital projects.
Abdullahi and Angu (2012) analysed budget in the Nigerian public sector. The study examined the budget of Nigerian public sector on a scorecard perspective. The study collected data on 600 questionaires from Borno, Bauch, Yobe, Taraba and Adamawa states. The study analysed data using analysis of variance and t-test pairwise test. The study revealed that budget performance differs from state to state. Thus, the study recommended the adoption of balanced scorecard, budget perspectives and close monitoring of budgets.
Adeleke (2011) investigated taxation, revenue allocation and fiscal federalism in Nigeria. Broadly, the study focused on the key issues and challenges of revenue and fiscal federalism in Nigeria. The study collated data for period 1970-2008. The study analysed data using discursive approach. The study revealed that fiscal system in Nigeria grants minimal fiscal autonomy to the subnational governments in terms of revenue assignment as the major taxes such as company income tax, VAT, custom and excise duties, tax on petroleum products and education tax, are assigned to the federal government. Therefore, the study recommended that each level of government should be made to be autonomous; and concerted effort should be made to boost the internal revenue of the local and state government.
Apere and Durojaiye (2016) assessed the impact of value added tax on government revenue and economic growth in Nigeria. The study specifically analysed the impact of value added tax on government revenue; and impact of value added tax on economic performance. Economic performance was measured by gross domestic product. The study employed data from 1994 to 2014. The study analysed data using Phillip Peron unit root test, descriptive analysis, correlation analysis and Pairwise granger causality test. The study revealed that there is a long run significant positive relationship between value-added tax and each of government total revenue and gross domestic product in Nigeria. Therefore, the study revealed that value-added tax has relationship with government revenue and economic growth. Thus, the study recommended that more attention should be on value added tax to stimulate greater government revenue and economic growth.

Ezugwu and Agbaji (2014) assessed the contribution of internal generated revenue to the total tax revenue of Kogi State. The study focused on the contribution of internally generated revenue to total revenue before tax identification number. The study employed data from 2003-2007. The study analysed data using regression analysis. The study revealed that internally generated revenue has weak positive influence on the total revenue of Kogi state. Therefore, the study concluded that the impact of internally generated revenue before tax identification number on total revenue is not statistically significant. Thus, the study recommended that holistic tax education to taxpayers; and incentives for the tax Officials that are involve in the collection of taxes to boost their productivity.
Olusola and Siyanbola (2014) investigated the role of internally generated revenue in local government administration in Nigeria. The study focused on the percentage contribution of rates, fines, fees and earnings from commercial undertakings on total internal generated revenue of local government. The study modelledfines, fees and licenses, earnings, rent, rates, interest and dividend payments, grants and miscellaneous as explanatory variables. The dependent variable was total internally generated revenue. The study employed data collected through questionnaire and interview from three local governments in Ogun State. The study analysed data using regression analysis. The study revealed that internal revenue sources, except rates, are statistically significant. Also, the result revealed negative impact of interest on internal revenue. However, the study recognized that rate is of primary importance to internally generated revenue. Therefore, the study concluded that internal generated revenue source of local government has no significant on total internally generated revenue. Thus, the study recommended, among others, improvement of internal control systems on collections and remittances of rates and taxes that are presently being diverted by collectors.
Raphael, Isaac and Ogunmakin (2017) assessed the revenue mobilization in Nigerian Local Government. Broadly, the study examined the problems and prospects of revenue mobilization. The study specifically focused on the impact of development on internally generated revenue; and impact of financial misappropriations on internally generated revenue in the local government in Nigeria. The study collected data from 300 respondents in 16 local governments in Ekiti state. The study analysed data using regression method. The study revealed that the level of development and financial misappropriation have positive and significant influence on internally generated revenue. Thus, the study recommended that local government authorities should ensure both human and infrastructural development in their respective constituencies.
Ishola, Olaleye, Olajide and Abikoye (2015) investigated government expenditure, oil revenue and economic growth in Nigeria. The study specifically focused on impacts of oil revenue to the performance of an economy; relationship between oil revenue and public expenditures on health and education; and the significance of increasing crude oil revenue expenditures to growth of an economy. The study adopted two models. The first modelled growth rate GDP as dependent variable and explanatory variables are adult literacy rate, life expectancy, growth rate of labour, growth rate of capital and structural adjustment programme. The second modelled real growth rate of GDP as dependent variable, and explanatory variables are total health expenditure oil revenue, primary school enrolment, post primary school enrolment and tertiary school enrolment. The study employed data from 1982-2011. The data was analysed using Ordinary Least Square. The study revealed positive and significant impact of literacy rate and life expectancy and oil revenue on economic growth. Thus, the study recommended that more attention has to be directed towards increasing the spending on education and health.
Felix and Sunday (2017) analysed the effect of accountability in budget implementation in Ondo State. The study modelled total approved budget estimates as dependent variable and explanatory variable was period in terms of yearly budget estimates. The study employed data from 2007-2014. The study analysed data using ADF unit root test and Ordinary least square. The study revealed that the estimated parameter is low in explaining the annual approved budget estimates and the goodness of fit was weak. Thus, the study recommended the use of accurate data which will be predicated on the performance of past budgets; and need for strict observance of budget discipline by the executive to guide against extra-budgetary spending.
Michael and Sunday (2013) assessed the effect of internally generated revenue on infrastructural development in AkwaIbom State. Specifically, the study ascertained contribution of internally generated revenue to the provision of water; provision of electricity; and provision of roads in AkwaIbom. The study employed archival retrieval method. The study revealed that internally generated revenue contributed significantly and positively to the provision of water, electricity and roads. However, the study revealed that these contributions were skewed more to roads than electricity and water. Therefore, the study concluded that internally generated revenue has made positive, but uneven contribution to the development of infrastructures in the State. Thus, the study concluded that more IGR should be allocated to water than road; and government should also allocate more IGR toward power generation and distribution.
Moshood (2015) investigated local government revenue and Performance in Kwara state. The study specifically focused on the extent of the influence of development on internally generated revenue; and dependency of local government on external revenue from state and federal government. The study employed primary data collected from 300 respondents in 3 local governments in Kwara state. The study analysed data using descriptive analysis. The study revealed that projects undertook by local governments has significant impact on development. Therefore, the study recommended adequate autonomy for local governments to perform effectively and efficiently.
Samuel and Gabriel (2016) evaluated the effect of electronic internally generated revenue on infrastructural development of Ebonyi state. The study focused on the degree of impact of manual and electronic internally generated revenue on infrastructure. Infrastructure was proxied by capital expenditure. The study employed data from January to December of 2011-2014. The study analysed data using Pearson co-efficient correlation method. The study revealed that relationship between internally generated revenue and infrastructure is not significant. Electronic internally generated revenue has positive relationship with infrastructure. Manual internally generated revenue has negative relationship with infrastructure. Therefore, the study recommended that if electronic approach to revenue generation is maintained and reviewed frequently, it will be the right choice and approach to boost internal revenue towards enhancing capital expenditure needs of Ebonyi State.
Linus and Kalu (2009) investigated state government finances and real asset investments in Nigeria. The study examined role of the financing sources of Nigerian state governments in the financing of their real asset investments. The study modelled real asset investment as dependent variable. Explanatory variables were internally generated revenue, federal allocation, loans, value added tax, stabilization fund and grants. The study employed data from 1984-2008. The study analysed data using analysis of variance and regression analysis. The study revealed that internally generated revenue, loans, grants and value added tax are found insignificant in the financing of the real asset investments of Nigerian state governments. Thus, the study recommended that state governments should make conscious efforts to be aware of some of the international grants they can access for development projects.
Hassan and Ajayi (2015) reviewed the revenue and expenditure pattern of Osun State Government. The study focused on sources of revenue and dominant sources of revenue of Osun State Government; impact of revenue consultants on the internally generated revenue; and examined how government spend its income. The study collected data through interview of four principal officers in financial sector in Osun state and collated secondary data from 1997-2006. The study discovered that Statutory Allocation was the dominant sources of government revenue during the period of study. It accounted for 63.69% while IGR was 19.7%, Value Added Tax was 8.07% and capital Receipts 8.48%. The study also revealed that recurrent expenditure overshot the capital expenditure. The study therefore concluded that Osun state was over dependent on external sources to finance its expenditure. Thus, the study recommended, among others, that government should make effort to diversify the revenue base of the state.
Moses, Stephen and Basil (2012) examined the various options for maximizing internal revenue generation in the Nigerian local governments. The study focused on the various sources of internal revenue, problems of exploring these resources and reason why the sources are untapped or under-taped. The study employed discursive approach. The study revealed that the source of internal revenue of local government were Community Tax, Property Rates, General/Development Rates, Licenses, Fees and Charges, interest on revenue and Departmental Recurrent Revenues. The study identified the reason for untapped source as lack of political will and improper attitude of local government workers. Thus, the study recommended, among others, the minimization of corruption and administrative waste; and use of prevention and detection methods.

CHAPTER THREE
RESEARCH METHOD
3.1 Research Design
This study will make use of longitudinal research design, covering defined cross sectional unit (southwest states) over a specified period of time.
3.2 Population of the Study
Population of the study will include all southwest states in Nigeria including Ekiti state, Oyo state, Ogun state, Ondo state, Osun state and Lagos state.
3.3 Sample Size and Sampling Technique
The study willsample all the southwestern states in Nigeria and data will be collated this stated for a period of 10 years covering 2007 to 2016.
3.4 Sources of Data and Method of Data Collection
This study will make use of secondary data sourced from the annual budget of each state as well as from the data base of the budget office of each states covered in the study
3.5 Theoretical Framework
This study will be hinged on the framework of the Wiseman-peacock hypothesis of growth of public expenditure. This theory posited that public expenditure tends to increase in a jerk or steplike fashion, given that in an ideal state some social, economic or otherwise disturbances takes place which create a need for increased public expenditure, which the existing public revenue cannot meet. This theory emphasized that in the early stage of state growth, due to insufficient pressure on public expenditure, the revenue constraint will dominate and restrain expansion in public expenditure of the state, but due to changes brought the disturbance such restrain will give way and public expenditure will increase, thereby making the inadequacy of the present revenue quite clear. The inadequacy of the revenue as compared to the required public expenditure creates an inspection effect, which will make the government to review the revenue position and the need to find solution and adjustment in the revenue generation required to finance the increase expenditure.In essence this theory related revenue generation to expansion in public expenditure, which implies that revenue generation has a role to play in increase in public expenditure through budget implementation (Bhatia, 2008)
3.6 Model Specification
This study will adapt the model used by Nnanseh and Akpan (2013) to investigate the interrelationship between internally generated revenue and infrastructural development in AkwaIbom State. the Study modeled infrastructural development measured in terms of annual expenditure on water (AEW), annual expenditure on electricity (AEE), and annual expenditure on road (AER) as a function of annual internally generated revenue (AIGR). For simplicity the adapted model is represented in linear form below:
Y_t= ?_0+ ?_1 ?AIGR?_it+?_it———————-(3.1)
Where Y is a vector of dependent variables used to measure infrastructural development (annual expenditure on water (AEW), annual expenditure on electricity (AEE), and annual expenditure on road (AER), and AIGR represent annual internally generated revenue, U is the stochastic error term.
For the purpose of analyzing the effect of internally generated revenue on budget implementation is southwestern states in Nigeria, the above model will be modified, replacing the infrastructural development variables by budget implementation fraction measured in terms of the percentage of total budgeted expenditure that is actually spent during the fiscal year, while explanatory variables include internally generated revenue and statutory allocation (being a control variable). The second model of this study specified internally generated revenue (IGR) as a function of lagged budget implementation fraction (BIF), actual capital expenditure (ACE) and actualrecurrent expenditure (ARE), in order to track the dynamic connection between budget implementation and internally generated revenue. Thus models of this study are specified in functional and linear forms below:
BIFit=f (IGRit, STAit)
IGRit=f(BIFit-1,BIFit-2, ACEit-1, ACEit-1, AREit-1, AREit-1)
Linear representation of the models
?BIF?_it= ?_0+ ?_1 ?IGR?_it+ ?_2 ?STA?_it+?_it——(3.2)
?IGR?_it= ?_0+ ?_1 ?BIF?_(it-1)+ ?_2 ?BIF?_(it-2)+ ?_3 ?ACE?_(it-1)+ ?_4 ?ACE?_(it-2) ?+ ?_5 ?ARE?_(it-1)+ ??_6 ?ARE?_(it-2)+?_it——(3.3)
Where:
BIF= budget implementation fraction (measured in terms of totalactual expenditure as a percentage of total budgeted expenditure)
IGR=Internally Generated Revenue (in billion naira)
STA= Statutory Allocation (in billion naira)
ACE= Actual Capital Expenditure (in billion naira)
ACEt-1=Actual Capital Expenditure lagged by a period (in billion naira)
ACEt-2=Actual Capital Expenditure lagged by two periods (in billion naira)
ARE= Actual Recurrent Expenditure (in billion naira)
AREt-1=Actual Recurrent Expenditure lagged by a period (in billion naira)
AREt-2=Actual Recurrent Expenditure lagged by two periods (in billion naira)
?_(it )represents the error term,
3.7 A-prioriExpectation
By expectation internally generated revenue should influence budget implementation fraction positively, which means increase in revenue generated internally should culminate into better budget implementation of the sampled southwestern states. It is also expected that previous level of budget implementation in terms of actual capital expenditure, actual recurrent expenditure and budget implementation fraction should engender improved level of internally generated revenue, thus there should be positive dynamic interrelationship between budget implementation and internally generated revenue capital of states. For simplicity the expected direction of relationship between budget implementation variables are presented in mathematical form below, using differentiation notation:
dBIF/dIGR;0: connote that internally generated revenue is expected to exert positive impact on budget implementation fraction
dIGR/(d?BIF?_(t-1,2) );0:connote that budget implementation fraction lagged by a period or two is expected to exert positive impact on current level of internally generated revenue
dIGR/(d?ACE?_(t-1,2) );0: connote that actual capital expenditure lagged by a period or two is expected to exert positive impact on current level of internally generated revenue
dIGR/(d?ARE?_(t-1,2) );0: connote actual recurrent expenditure lagged by a period or two is expected to exert positive impact on current level of internally generated revenue
3.8 Method of Data Analysis
In the quest to achieve the objectives, the study will make use of both descriptive and inferential statistics analysis, descriptive analysis that will be conducted in the study include mean analysis, standard deviation analysis, minimum and maximum analysis, trend analysis, followed by correlation analysis, static panel data analyses including pooled OLS estimator, fixed effect estimator, and random effect estimator, alongside post-estimation tests such as restricted f-test, Hausman test, Wald heterogeneity test, Wooldridge autocorrelation test, Pesaran cross sectional dependence test, and while generalized method of moment two-step estimation was will be used for dynamic analysis that will be conducted in the study.
3.8.1 Pooled OLS estimation
In the pooled OLS model or constant coefficient model all the observation are pooled together and a grand regression is estimated neglecting the cross sectional and time series nature of the data. Thus the model takes the form:
Y_it= ?_0+ ??_(m=1)^M??_m X?_it+?_it————————(3.4)
For t = 1,…..,T; i = 1,….,N; m = 1, …., M,
Where, T is the number of observations over time, N number of cross-sectional units in the panel, and M number of regressors. Both the intercept and coefficient are constant across subject and over time. However it worthy of note to say that pooled OLS model is the most restrictive panel data model cause it assumes the regression coefficient are the same for all cross sectional subjects. Thus it does not takes cognizance of the possible heterogeneity in the cross sectional units.

3.8.2 Least Square Dummy Variable Fixed Effect Estimation
In this third approach known as the least squares dummy variable (LSDV) regression model, the unobserved effect is brought explicitly into the model. If we define a set of dummy variables Di, where Di is equal to 1 in the case of an observation relating to firm i and 0 otherwise, the model can be written
Y_it= ?_0+?_(i=2)^N???_i D_i ?+ ??_(m=1)^M??_m X?_it+?_it——————(3.5)
Formally, the unobserved effect is now being treated as the co-efficient of the individual specific dummy variable.

3.8.3 Random Effect Model Estimation
The random effect model is specified on the notion that heterogeneity effect across cross sectional unit and over time cannot be tracked in the fixed sense, rather it’s a random effect that can only become a subset of the error term of the model.
Y_it= ?_0+??_(m=1)^M??_m X?_it+e_it+v_it——————(3.5)

Where:
Yit = measure of operational efficiency and firm’s growth rate
Xijt = measures of credit risk management
µit = e_it+v_it

3.8.4 Post-Estimation Test
Post estimation test conducted in the study include the restricted f-test of heterogeneity, hausman test, heteroscedasticity Wald test, Cross-Section independence test and autocorrelation test. Resticted f-test of heterogeneity is a poste estimation test conducted to validate if the Pool OLS restriction place on observation across cross sectional unit over time is justified. Hausman test is used to confirm the most consistent and efficient estimator between the fixed effect estimation and the random effect estimation. Heteroscadasticity test conducted is to test whether the assumption of constant variance of the residual terms is valid across cross sectional unit over time. Cross section independence test carried out is to ascertain if there is cross sectional independence in the residual term of panel estimation, and autocorrelation test conducted in the study is to confirm the correlation between successive values of the error term of the study
3.9Expected Contribution to Knowledge
This study will contribute to knowledge in the following ways:
First this study will presents an overview of the trend of internally generated revenue in southwestern states of Nigeria, and related observed plunge and/or to the socio-economic and political considerations during the period covered in the study
Secondly this study will delineate the static interrelation between internally generated revenue and budget implementation measured in terms of budget implementation fraction, which quantified the level of budget implementation based on the fraction of total budgeted expenditure actually spent in the implementation phase of budget annually.
Thirdly this study will also establish the dynamic interrelationship between budget implementation fraction, actual capital expenditure, actual recurrent expenditure and internally generated revenue of southwestern states in Nigeria, in other words the study will track the role budget implementation on the capacity of a state to generate revenue internally

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