Effect of county government revenue sources on gross county product levels in Kenya

Abstract

Devolution of government functions is a critical strategy for promoting economic growth in a country. Devolution ensures that public services are delivered in an efficient and well-coordinated manner. Despite the role of devolution in promoting economic growth and development, Kenya’s economic growth is generally sluggish. Kenya has one of the world’s highest levels of income inequality, with a disproportionately low proportion of Kenyans having access to healthcare and education. This means the majority of citizenry does not contribute or have minimal contribution to the national cake inform gross county product and National GDP. Despite the implementation of devolved system of governance in Kenya and the subsequent establishment of county revenue allocation which distributes revenues to the counties through various mechanisms, there still exist disparities in the rate and level of Gross county products among the 47 counties. The effect of county revenue and expenditure sources on economic expansion, in particular, has not been thoroughly investigated. This study therefore sought to investigate the relationship between different county revenue sources and gross county product in Kenya. The study specifically sought to investigate the effect of county equitable share, own source revenue, national government conditional grants and development partners conditional grants on gross county product in Kenya. The study was anchored on the Fiscal Decentralization and New Growth Theory. Longitudinal research design approach was adopted. Panel secondary data was used spanning from the period 2013-2021. Some of the tests that were carried out include; stationarity, normality, heteroscedasticity, multicollinearity and serial correlation. Data was analyzed using STATA and results were presented in form of descriptive and inferential statistics. Hausman test results suggested a fixed effect model was appropriate over random effect model. The R2 was 67.82 percent. The study found a positive and significant effect of equitable share (β1 =.9297, p-value<.01), own source revenue (β2=.1624, p-value<.01) and development partners conditional grants (β4=.0478, p-value<.01) on the gross county product. From the analysis, the study recommends the national government should reformulate the equitable share formula to increase more resources to the counties. Further, to boost their resource base the individual county governments should also improve their own revenue generation methods and increase the effectiveness of their collecting efforts. They should also seek out for more development partners. Since the study focused on the effect of county sources of revenue on gross county product, future studies should focus on the effect of these various revenue sources on county poverty index and sectorial development such as; agriculture, infrastructure, manufacturing and health