American Research Journal of Humanities and Social Sciences

Fiscal federalism deals with the division of resources and tax raising powers among federating units to enable them fulfill their constitutional obligations. This can only be true if there is no other financial subordination on the part of any of the levels of government. It means that neither the federal nor the State nor Local Government in a Federation should be dependent on each other in performing the statutory duties and functions devolved upon them in a federal constitution. Since it is fundamentally true that the challenges of fiscal federalism are enormous in Nigeria, the paper attempts to look into the importance of fiscal federalism for good governance in Nigeria. The paper noticed that the principle of fiscal autonomy and fiscal integrity are paramount aspects of the survival and continued existence of a truly federating system of government. The paper reveals that the contending issues and challenges of fiscal federalism could be in form of a mismatch between revenue sources and functions of the various tiers of government. The paper concludes by arguing that there is the prospect of a stable federation if anchored on arrangements rooted in equity, fairness and justice. The paper asserts further that the distribution of revenue should encourage each State and Local Government to improve internal revenue generation, as well as the devolution of fiscal power and responsibilities to component units.