DO TRANSFER STRUCTURES MATTER? INTERGOVERNMENTAL FISCAL TRANSFERS, FISCAL SUSTAINABILITY, AND EXPENDITURE COMPOSITION IN SELECTED AFRICAN COUNTRIES
This study investigates the implications of intergovernmental fiscal transfers for sub-national fiscal sustainability
and expenditure composition in four African countries: Nigeria, Kenya, Ethiopia, and South Africa. Using panel
data covering the period 2010 to 2024, the analysis evaluates how the structure of transfers influences fiscal
outcomes at the sub-national level. In particular, the study distinguishes between fragmented (conditional)
transfers and non-fragmented (block or consolidated) transfers and assesses their effects on fiscal sustainability,
measured by the debt-to-revenue ratio, as well as on expenditure allocation between capital and recurrent
spending. Panel econometric techniques are employed, including fixed and random effects estimators selected
through Hausman specification tests. The findings indicate that non-fragmented transfers are more closely
associated with improved fiscal sustainability in several contexts, particularly in Nigeria and Kenya, where block
transfers are linked to lower debt-to-revenue ratios. In contrast, fragmented transfers show no consistent statistical
relationship with fiscal sustainability across the countries examined. The results further show that population size
increases fiscal pressure on sub-national governments. With respect to expenditure composition, the impact of
transfers varies across institutional settings. While transfers support both capital and recurrent expenditure in
Ethiopia and South Africa, their influence on development-oriented spending remains limited in Nigeria and
Kenya, where recurrent expenditure dominates. The study concludes that the developmental impact of fiscal
decentralization depends largely on the structure of intergovernmental transfers and the institutional environment
governing their use.
Intergovernmental Fiscal Transfers; Fiscal Sustainability; Fiscal Decentralization; Sub-national Finance; Public Expenditure Composition.