Unconditional federal transfers and state government spending: The flypaper effect in Nigeria and South Africa

Abdurrahman Isik (1) Peter D. Golit (2) Paul Terhemba Iorember (3)
(1) Epoka University, Albania
(2) Central Bank of Nigeria, Nigeria
(3) Nile University of Nigeria, Nigeria


The flypaper effect is undoubtedly among the most interesting concepts in subnational government spending behavior. This study is the first attempt to provide empirical evidence on the existence of the flypaper effect in the two largest economies in Sub-Saharan Africa: Nigeria and South Africa. Using the two-step system generalized method of moment’s estimator, our results show that the flypaper effect exists for both state and provincial governments in Nigeria and South Africa. Provincial governments in South Africa are found to be more responsive to positive changes in unconditional federal transfers than state governments in Nigeria. We therefore recommend sen­sitization on the receipt and disbursement of unconditional federal transfers. This will help reduce the illusion or information asymmetry about the use of unconditional federal transfers.

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Abdurrahman Isik
Peter D. Golit
Paul Terhemba Iorember
piorember1990@gmail.com (Primary Contact)
Author Biographies

Abdurrahman Isik, Epoka University

Department of Economics, Epoka University, Albania; aisik@epoka.edu.al

Peter D. Golit, Central Bank of Nigeria

Research Department, Central Bank of Nigeria, Nigeria; golitson2@yahoo.com

Paul Terhemba Iorember, Nile University of Nigeria

Department of Economics, Nile University of Nigeria, Nigeria; piorember1990@gmail.com

Isik, A., Golit, P. D., & Iorember, P. T. (2023). Unconditional federal transfers and state government spending: The flypaper effect in Nigeria and South Africa. Modern Finance, 1(1), 99–115. https://doi.org/10.61351/mf.v1i1.46

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