Nigerian Journal Sustainability Research

Publications

Vol. 4 No. 1 (2026): Building Resilience: Perspectives on Sustainability

Do Fiscal Transfers Cushion the Poor? Assessing State FAAC Allocations and Post-Subsidy Poverty Trends in Nigeria.

Submitted
December 31, 2025
Published
2026-01-10

Abstract

This study investigates the poverty-reduction potential of intergovernmental fiscal transfers in Nigeria, with a focus on the Federation Account Allocation Committee (FAAC) disbursements in the post-subsidy era. The aim is to assess whether fiscal transfers can cushion poverty amid inflationary pressures and economic shocks. Using monthly panel data from January 2022 to December 2024 for 36 states, the study applies second-generation econometric techniques, including CS-ARDL, fixed effects, PMG, CCEMG, and AMG, to explore the relationship between FAAC allocations and poverty outcomes. The theoretical framework is grounded in fiscal decentralization and social protection theories. The findings reveal that while FAAC allocations significantly reduce poverty, their effectiveness is mitigated by inflation and population growth. Additionally, the post-subsidy dummy indicates that the fuel subsidy removal weakened the poverty-reducing potential of transfers. A novel Cushioning Index, developed to adjust FAAC allocations for inflation, showed limited impact on poverty, suggesting that fiscal transfers alone are insufficient without complementary governance reforms and macroeconomic stability. The study concludes that institutional capacity, fiscal transparency, and inflation control are essential for ensuring that fiscal transfers achieve poverty reduction. Therefore, the study recommends that states prioritize targeted poverty programs, strengthen governance and transparency, and establish emergency frameworks to cushion the effects of economic shocks on vulnerable populations.

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