Effects of fiscal decentralization on poverty reduction in Kenya
DOI:
https://doi.org/10.31686/ijier.vol6.iss1.937Keywords:
Fiscal Decentralization, Poverty ReductionAbstract
The Kenya government has instituted fiscal decentralization over the years to promote social economic development, reduce poverty and income inequality and ensure balanced regional development. Despite these efforts, poverty levels have remained high in Kenya. The literature on the relationship between fiscal decentralization and poverty has been rather inconclusive about the effects of fiscal decentralization on poverty. The main objective of this paper was to analyse the effects of fiscal decentralization on poverty in Kenya. Using cross-county panel data from 2002 – 2014 and published data from government agencies, UNDP reports and World Bank reports, the paper estimated various empirical models to analyse the effects intergovernmental transfers, sub-national own-source revenue and county expenditure on poverty in Kenya. The study established that the effect of fiscal decentralization on poverty depends on the nature of decentralization and the extent of fiscal decentralization as well as the county specifics. The paper therefore, recommends the need for for county governments to have adequate own-source revenue to finance their expenditure as opposed to relying on intergovernmental transfers from national government.
Downloads
References
Bardhan, P., and Mookherjee, D. (2004). Poverty alleviation effort of West Bengal panchayats, Economic and Political Weekly.
Bardhan, P., and Mookherjee, D. (2005). Decentralizing antipoverty program delivery in developing countries. Journal of Public Economics, 89(4), 675-704. DOI: https://doi.org/10.1016/j.jpubeco.2003.01.001
Beramendi, P. (2003). Political Institutions and Income Inequality: The Case of Decentralization. Discussion Paper SP II 09, WZB. DOI: https://doi.org/10.2139/ssrn.473701
Besley, T., and Coate, S. (2003). Centralized versus decentralized provision of local public goods: A political economy approach. Journal of Public Economics, 87(12), 2611-37. DOI: https://doi.org/10.1016/S0047-2727(02)00141-X
Commission on Revenue Allocation. (2013). County Budgets 2013-2014. Nairobi: Commission on Revenue Allocation.
Commission on Revenue Allocation. (2011). Criteria for Identifying Marginalized Areas for Purposes of Equilization Fund. Nairobi: Commission on Revenue Allocation.
Enikolopov, R., and Zhuravskaya. (2003). Decentralization and political institutions: CEPR Discussion Papers: 3857. DOI: https://doi.org/10.2139/ssrn.408060
Ezcurra, R., and Pascual, P. (2008). Fiscal decentralization and regional disparities: evidence from several European Union countries, Environment and Planning A. 40(5), 1185– 1201. DOI: https://doi.org/10.1068/a39195
Faguet, J. (2004). Does decentralization increase responsiveness to local needs? Evidence from Bolivia. Journal of Public Economics 88, 867-894. DOI: https://doi.org/10.1016/S0047-2727(02)00185-8
Galasso, E., and Ravallion, M. (2005). Decentralized targeting of an antipoverty program. Journal of Public Economics 89(4), 705-27. DOI: https://doi.org/10.1016/j.jpubeco.2003.01.002
Gil C., Pascual, P., and Rapun, G. (2004). Regional economic disparities and decentralisation. Urban Studies, 41(1), 71-94. DOI: https://doi.org/10.1080/0042098032000155696
Goerl, C.A., and Seiferling, M. (2014). “Income Inequality, Fiscal Decentralization and Transfer Dependency,” IMF Working Paper 14/64 (Washington: International Monetary Fund) DOI: https://doi.org/10.5089/9781484354711.001
Greene, W. H. (2003). Econometric Analysis. New Jersey: Pearson Education, Inc. Upper Saddle River,
Greene, W.H. (2006). Econometric Analysis, 6th Edition, New Jersey: MacMillan Publishing Company.
Gujarati, D.N. (2004). Basic Econometrics, 4th edition. New York: Mcgraw Hill Inc.
Hausman, J. A. (1978). Specification tests in econometrics. Econometrica, 46(1), 1251 - 1272. DOI: https://doi.org/10.2307/1913827
Im, K. S., Pesaran, M. H. and Shin, Y. (1997). “Testing for Unit Roots in Heterogeneous Panels”, Journal of Econometrics, Vol.115, 53-74.Kanbur, R. (2002). Conceptual challenges in poverty and inequality: One development economist’s perspective. Department of Applied Economics and Management; Cornell University. DOI: https://doi.org/10.1016/S0304-4076(03)00092-7
Kanbur, R., and Feroni, M. (1991). Poverty conscious restructuring of public expenditure. In A. Chhibber and S. Fischer (eds.), Economic Reform in Sub-Saharan Africa: The World Bank.
Kanbur, R., and Zhang, X. (2005). Fifty years of regional inequality in China: a journey through revolution, reform and openness. Review of Development Economics, 9(1), 87-106. DOI: https://doi.org/10.1111/j.1467-9361.2005.00265.x
Kaufman, M., Swagel, P., and Dunaway, S. (2003). Regional Convergence and the Role of Federal Transfers in Canada. IMF Working Paper 0397. DOI: https://doi.org/10.2139/ssrn.879173
Keen, M., and Kotsogiannis, C. (2002). Does Federalism Lead to Excessively High Taxes? American Economic Review, 92 (1), 363-370. DOI: https://doi.org/10.1257/000282802760015784
Kenya Institute of Public Policy Research and Analysis. (2012). Kenya Economic Report 2012: Creating an Enabling Environment for Stimulating Investment for Competitive and Sustainable Counties. Nairobi: Kenya Institute for Public Policy Research and Analysis.
Kenya National Bureau of Statistics and Society of International Development, (2013). Exploring Kenya’s Inequality: Pulling Apart or Pooling Together? Nairobi: Kenya National Bureau of Statistics and Society of International Development
Lessman, C. (2012). Regional inequality and decentralization: an empirical analysis. Environment and Plannning A, 44, 1363-1388. DOI: https://doi.org/10.1068/a44267
Lessmann, C. (2009). Fiscal decentralization and regional disparity: evidence from cross-section and panel data, Environment and Planning A, 41, 2455–2473. DOI: https://doi.org/10.1068/a41296
Lindaman, K., and Thurmaier, K. (2002). Beyond efficiency and economy: An examination of basic needs and fiscal decentralization. Economic Development and Cultural Change, 50 (4), 915-34. DOI: https://doi.org/10.1086/342760
Martinez-Vazquez, J., and McNab, R. (2003). "Fiscal Decentralization and Economic Growth", World Development, 31(9), 1597-1616. DOI: https://doi.org/10.1016/S0305-750X(03)00109-8
Martinez-Vazquez, J., and McNab, J. (2001). Fiscal Decentralization and Economic Growth. International Studies Programme Working Paper, Georgia State University. DOI: https://doi.org/10.2139/ssrn.259281
McKinnon, R. I. (1997). Market-preserving scal federalism in the American monetary union. In M. Blejer and T. Ter-Minassian (editors), Macroeconomic Dimensions of Public Finance: Essays in Honour of Vito Tanzi, pp. 73-93. London: Routledge. DOI: https://doi.org/10.4324/9780203024980.pt2
Musgrave, R. (1959). The Theory of Public Finance. New York: McGraw-Hill.
Musgrave, R. A., and Musgrave, P.B. (1989). Public Finance in Theory and Practice, 5th ed. Singapore: McGraw-Hill.
Neyapti, B. (2006). “Revenue decentralization and income distribution.” Economics Letters 92:409-416. DOI: https://doi.org/10.1016/j.econlet.2006.03.026
Oates, W.E. (1968). The theory of public finance in a federal system. Canadian Journal of Economics 1, 37-54. DOI: https://doi.org/10.2307/133460
Oates, W. E. (1972). Fiscal Decentralization. New York: Harcourt Brace Jovanowich, Inc.
Oates, W. E. (1993). “Fiscal Decentralization and Economic Development”, National Tax Journal, 46 (2), 237-243. DOI: https://doi.org/10.1086/NTJ41789013
Oates, W.E. (1999). “An Essay on Fiscal Federalism.” Journal of Economic Literature, 37, 1120-1149. DOI: https://doi.org/10.1257/jel.37.3.1120
Oates, W. E. (2005). “Toward a Second-Generation Theory of Fiscal Federalism” International Tax and Public Finance, 12(4), 349–373. DOI: https://doi.org/10.1007/s10797-005-1619-9
Oates, W. E. (2006). On the Theory and Practice of Fiscal Decentralization. In: The Tiebout Model at Fifty, ed. William A. Fischel. Cambridge, M. A: Lincoln Institute of Land Policy, 1-32.Organization for Economic Cooperation and Development. (2005). “Fiscal autonomy of sub-central governments.” Organization for Economic Cooperation and Development Network on Fiscal Relations Across Levels of Government Working Paper No. 2.
Organization for Economic Cooperation and Development. (2009). “Taxes and Grants: On the Revenue Mix of Sub-Central Governments,” Working Paper No. 7 (Paris)
Organisation for Economic Co-operation and Development. (2011). Divided We Stand: Why Inequality Keeps Rising. Paris: OECD Publishing.
Pindyck, R. S., and D. L. Rubinfeld. (1998). Econometric Models and Economic Forecasts. New York: Irwin/McGraw-Hill Companies Inc.
Prud’homme, R. (1995). The Dangers of Decentralization. The World Bank Research Observer, 10, 201-26. DOI: https://doi.org/10.1093/wbro/10.2.201
Qian Y., & Roland, G. (1998). “Federalism and the Soft Budget Constraint.” American Economic Review, 88(5), 1143-62.
Qian, Y., and Weingast, B. (1997). Federalism as a commitment to preserving market incentives. Journal of Economic Perspectives, 11, 83-92. DOI: https://doi.org/10.1257/jep.11.4.83
Republic of Kenya. (1965). Sessional paper No. 10 of 1965: African socialism and application to planning in Kenya. Nairobi: Government Printer.
Republic of Kenya. (2007a). Kenya Roads Act, 2007. Nairobi: Government Printer.
Republic of Kenya. (2007b). Kenya Vision 2030: A globally competitive and prosperous Kenya. Nairobi: Government Printer.
Republic of Kenya. (2007c). Kenya Integrated Household Budget Survey 2005/2006. Nairobi: Government Printer.
Republic of Kenya. (2006). Energy Act, 2006. Nairobi: Government Printers.
Republic of Kenya. (2003a). Constituency Development Fund (CDF) Act, 2003. Nairobi: Government Printers
Republic of Kenya, (2003b). Economic recovery strategy for wealth and employment creation, 2003 – 2007. Nairobi: Government Printer.
Republic of Kenya. (1998). Local Authority Transfer Fund (LATF) Act No. 8 of 1998. Nairobi: Government Printers.
Republic of Kenya. (1969).Transfer of Functions Act, 1969. Nairobi: Government Printers.
Republic of Kenya. (2010).Constitution of Kenya 2010. Nairobi: Government Printers.
Republic of Kenya. (2012). County Government Acts 2012. Nairobi: Government Printers.
Republic of Kenya. (1963). Constitution of Kenya, 1963. Nairobi: Government Printers.
Republic of Kenya. (1964). Constitution of the Republic of Kenya (Amendment), 1964. Nairobi: Government Printers.
Republic of Kenya, (1984). District Focus for Rural Development. Nairobi, Government Printer.
Republic of Kenya. (2015). The County Allocation of Revenue Bill, 2015. Nairobi: Government Printers.
Republic of Kenya. (2014). The County Allocation of Revenue Bill, 2014. Nairobi: Government Printers.
Republic of Kenya. (2014). County Governments Annual Budget Implementation Review Report 2013-2014. Nairobi: Government Printers.
Republic of Kenya. (2015). County Governments Annual Budget Implementation Review Report 2014-2015. Nairobi: Government PrintersRodríguez-Pose, A., and Ezcurra, R. (2011). ‘Is fiscal decentralization harmful for economic growth? Evidence from the Organization for Economic Cooperation and Development countries,’ Journal of Economic Geography 11(4), 619–643. DOI: https://doi.org/10.1093/jeg/lbq025
Rodriguez-Pose, A., and Gill,N. (2004). Is there a global link between regional disparities and devolution? Environment and Planning A, 36(12), pp. 2097- 2117. DOI: https://doi.org/10.1068/a362
Rodríguez-Pose, A., and Ezcurra, R. (2010). Does decentralization matter for regional disparities? A cross-country analysis, Journal of Economic Geography. 10: 619–644. DOI: https://doi.org/10.1093/jeg/lbp049
Saachi, A., and Salotti, S. (2011). Income Inequality, Regional Disparities, and Fiscal Decentralization in Industrialized Countries. Collana del Dipartemento di Economia, Universita degli Studi Roma Tre.
Sepulveda C F, Martinez-Vazquez J, (2010). ``The consequences of fiscal decentralization on human development and income inequality'', WP 10-02, International Studies Program, Andrew Young School of Policy Studies, Georgia State University, http://aysps.gsu.edu/isp/ files/ispwp1002.pdf
Sepúlveda, C., and Martínez-Vázquez, J. (2011). The Consequences of Fiscal Decentralization on Poverty and Income Inequality, Environment and Planning C: Government and Policy. 29, 321–343. DOI: https://doi.org/10.1068/c1033r
Shah, A. (2007). Jostering Responsiveness and Accountable Governance: Lessons from Decentralization Experience. Presented at the World Bank Conference on Evaluation and Development, April 12, Washington, D. C.
Shankar, R., and Shah, A. (2003). Bridging the economic divide within countries - a scorecard on the
Smoke, P. (2001). Fiscal Decentralization in Developing Countries. A Review of Current Concepts and Practice; Geneva, UNRISD.
Smoke, P. (2000). Beyond Normative Models and Donor Trends: Strategic Design and Implementation of Decentralization in Developing Countries, mimeo, Management Development and Governance Division, New York, United Nations Development Programme.
Sorens J. (2010). The institutions of fiscal federalism, Publius: The Journal of Federalism 41(2), 207– 231. DOI: https://doi.org/10.1093/publius/pjq016
Sorens, J. (2014). Does Fiscal Federalism Promote Regional Inequality? An Empirical Analysis of the Organization for Economic Cooperation and Development, 1980-2005. Regional Studies. DOI: https://doi.org/10.1080/00343404.2012.661851
Stegarescus, D. (2005). Public Sector Decentralization: Measurement Concepts and recent International Trends. Centre for European Economic Research Discussion Paper No.04-74 DOI: https://doi.org/10.2139/ssrn.604482
Tanzi, V. (1996). “Fiscal federalism and decentralization: A review of some efficiency and macroeconomic aspects”, in M. Bruno, and B. Pleskovic (eds.), Annual World Bank conference on development economics, 1995, Washington, D.C.: World Bank, 295-316.
Tiebout, C. M. (1956). A Pure Theory of Local Expenditure, Journal of Political Economy, 64, 416-424. DOI: https://doi.org/10.1086/257839
Torres, O. (2010), Panel Data Analysis, Fixed and Random Effects, New Jersey: Princeton University education.
Tresch, R.W. (2002). Public Finance: A Normative Theory, 2nd edition, NewYork: Elsevier Science, USA.
Tselios, V., Rodríguez-Pose, A., Pike, A.J., Tomaney, J., and Torrisi, G. (2012). “Income inequality, decentralization, and regional development in Western Europe,” Environment and Planning, 44, 1278-1301.United Nations Development Programme, (2010). Kenya Human Development Report 2009: Youth and Human Development-Tapping the Untapped Resource. Nairobi: United Nations Development Programme DOI: https://doi.org/10.1068/a44334
United Nations Development Programme. (2014). Human Development Report. New York: United Nations Development Programme
United Nations Development Programme. (2013). Kenya National Human Development report. New York: United Nations Development Programme
United Nations Development Programme. (2000). Overcoming human poverty: United Nations Development Programme poverty report 2000. New York: United Nations Development Programme.
Von Braun, J., and Grote, U. (2000). "Does Decentralization Serve the Poor?” Center for Development Research, University of Bonn, Germany.
Weingast, B. (1995). The economic role of political institutions: market-preserving federalism and economic development. Journal of Law, Economics and Organization, 11(1), 1-31.
Wildasin, D.E. (1994). “Income redistribution and migration” Canadian Journal of Economics, 27,637- 656 DOI: https://doi.org/10.2307/135788
Widhyanto, I. (2008). Fiscal Decentralization and Indonesia Regional Income Disparity (1994 2004). Jurnal Keuangan Publik. 5 (1), 19-53
Wooldridge, J. M. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press.
Wooldridge, J. M. (2004). Introductory Econometrics: A modern Approach 2nd Edition. Cambridge, MA: MIT Press.
World Bank. (2006). Strenghtening Bank Group Engagement on Governance and Anticorruption. Washington, D.C.: Joint Ministerial Committee of the Boards of Governors of the World Bank and the International Monetary Fund on the Transfer of Real Resources to Developing Countries.
World Bank. (2000). World Development Report 1999/2000: Entering the 21st Century, Washington, DC: World Bank.
World Bank. (2002). Empowerment and Poverty Reduction: A Sourcebook. Washington DC: Prepared by Poverty Reduction and Economic Management staff, World Bank.
World Bank. (1995). Development in Practice: Priorities and Strategies for Education. Washington DC: World Bank.
World Bank. (1997). China 2020: Development Challenges in the New Century. Washington, DC, The World Bank.
World Bank. (2003). Cities in transition: urban sector review in an era of decentralization in Indonesia. East Asian Urban Working Paper Series, Discussion Paper No. 7. The World Bank.
World Bank. (2009). Fiscal Management in India. Washington, DC: World Bank.
Yao, G.A. (2007). "Fiscal Decentralization and Poverty Reduction Outcomes: Theory and Evidence." Dissertation, Georgia State University,
Downloads
Published
Issue
Section
License
Copyright (c) 2018 Mwiathi Peter Silas, Nelson H.W.Wawire, Perez A. Onono Okelo
This work is licensed under a Creative Commons Attribution-NoDerivatives 4.0 International License.
Copyrights for articles published in IJIER journals are retained by the authors, with first publication rights granted to the journal. The journal/publisher is not responsible for subsequent uses of the work. It is the author's responsibility to bring an infringement action if so desired by the author for more visit Copyright & License.
How to Cite
