Abstract

Most Nigerian states finance capital projects from federation account transfers they neither control nor predict, and Ebonyi State sits near the far end of that dependence. This study examined the impact of two internally generated revenue (IGR) streams, Pay-As-You-Earn (PAYE) and motor licence fees (MLF), on capital development in Ebonyi State, with capital development proxied by state capital expenditure on infrastructural projects. An ex-post facto design was adopted, and secondary data covering 2011 to 2018 were drawn from monthly reports submitted by the revenue consultant, Techvibe Nigeria Limited, to the Office of the Accountant-General and from the audited annual financial statements of the state. Thirty-two quarterly observations were analysed with descriptive statistics, a correlation matrix and three regression estimators: pooled ordinary least squares, fixed effects and random effects. The Hausman test (χ² = 0.2738; p = 0.0685) favoured the random effects specification. Results showed that PAYE exerted a negative but statistically insignificant effect on capital expenditure (β = −0.0917; p = 0.0704), whereas motor licence fees exerted a positive and significant effect (β = 0.1871; p = 0.0001), a pattern that held across all three estimators. The study concluded that the user-linked, transport-based revenue stream translated into capital spending more reliably than the payroll tax, whose proceeds appeared to be absorbed by recurrent obligations. It recommended ring-fencing a defined share of motor licence receipts for road and transport capital projects and tightening the link between PAYE growth and the capital budget.