Determinants of Local Revenue Generation in Nairobi City County

Abstract

The biggest challenge that county governments in Kenya face is the question of raising enough money to finance goods and services required by the taxpayers. Local revenue, also known as ownsource revenue, can play a very critical role in meeting such demands. Taxpayers pay money in exchange for goods and services received from the county government. This study examined the determinants of local revenue generation in Nairobi City County. It identified the sources of local revenue, their profiles, trends, determinants and their short and long-run relationships. Main variables examined were the county level of debt, county government human resource capacity, inflation, information technology, infrastructure and exchange rates. The theories examined were the ability to pay approach, theory of fiscal policy, theory X and theory Y and the benefit principle. Published monthly time series data were collected from Nairobi City County publications, office of controller of budgets, budget speeches, Central Bank of Kenya and Kenya National Bureau of Statistics for financial year 2013-2018. Empirical results suggested that human resource capacity, debt, information technology and infrastructure positively impact local revenue. Exchange rate and inflation negatively affect local revenue in Nairobi City County.