Comparison between representative tax system and macro basis for revenue equalization systems in Kenya

Abstract

The aim of this study was to compare the Representative Tax System and macro basis of revenue allocation in Kenya, in relation to equalization systems. The study sought to address the following research question, do the representative tax system and macro basis of revenue allocation ensure equity in the transfer of resources in Kenya. The population of the study comprised of all the 142 (one hundred and forty two) local authorities in Kenya. The study used descriptive design and a census method. Descriptive survey design was preferred because it enables the researcher to describe the area of research and explain the collected data in order to properly investigate the differences and similarities. The study used secondary data for the last 10 years derived from the financial records of the 142 local authorities in Kenya. Secondary data is important in establishing the relationship between the dependent and the independent variables. The results of the study indicate that the macro model performs better the variations in funds allocated to counties than the representative tax system. The results alo show that population carried the highest weight in explaining factors that affect funds allocated to local authorities with an index of 60%. Other factors which included land area, equal share, fiscal discipline and poverty level had explanation weight of 31%, 27%, 26% and 14% respectively. The findings indicate that, the relationship between all the variables (that is, poverty level, equal share, land area, fiscal discipline, and population as well as funds allocated to local authorities) with each other is significant at 95% confidence level. The study revealed that, for equalization transfers to county government, population within a particular county is the main consideration given that, the higher the population, the more cost of maintenance of infrastructure given the latter’s rate of usage. Given the large jurisdiction to the local authorities the minimum amount allocated to such county will be far much higher.