Revenue Transfer, Absorption Rate and Performance of Devolved Units in Kenya

Abstract

From the year 2013, the National Government began transferring a minimum 15% of nationally collected revenue which has been most recently audited by the auditor general to the 47 Counties for use in their various programmes and projects. The funds are distributed among all counties based on a set of criteria that includes population size, land area, and poverty levels. Conversely, county governments raise funds from local sources to augment transfers from the federal government. This is done through local tax collection in the form of property rates, charges and various fees. This research sought to bring out the effect of revenue transfer and absorption rate on the performance of devolved units in Kenya. Local revenue collection and recurrent spending were used as the control variables in the model. Descriptive research design was used. The target population was the 47 devolved units in Kenya. Research variables data were derived from office of the auditor general, officer of the controller of budgets, KNBS and AGBIRR from 2016 to 2020 for all the 47 devolved units. Regression and correlation analysis were used to test the study hypotheses by establishing the relationship between revenue transfer and performance. The study found that revenue transfer (β=0.111, p=0.000) and local revenue collection (β=0.033, p=0.007) had a positive and significant effect on the performance among devolved units in Kenya. The study also found that absorption rate (β=0.003, p=0.463) and recurrent spending (β=0.000, p=0.905) had no significant effect on the performance among devolved units in Kenya. The results also indicated R2 of 0.247 which implied that the selected independent variables contributed 24.7% to variations in performance. The study recommends that policy makers such as members of parliament should come up with policies that increase revenue transfer to the counties as this will lead to an increase in performance of devolved units. County heads should also advocate for an increase in revenues allocated to the counties. The study further recommends that heads of devolved units should develop strategies aimed at increasing local revenue collection without hurting the businesses as an increase in local revenue leads to a rise in performance. Members of the county assembly should also develop policies aimed at increasing the local revenue tax base.