Fiscal Decentralization, Allocative Efficiency, Public Governance and Performance of County Governments in Kenya

Abstract

The principal objective of this study was to investigate the relationships amongst fiscal decentralization, allocative efficiency, public governance and performance of county governments in Kenya during the period spanning from 2013 – 2018. Four specific objectives were developed namely, to examine the effect of fiscal decentralization on performance and to establish the mediating effect of allocative efficiency as well as the moderating effect of public governance on the relationship between fiscal decentralization and performance of county governments. The fourth objective was to determine the joint effect of Fiscal Decentralization, Allocative Efficiency and Public Governance on Performance of county governments in Kenya were developed. Four corresponding hypothesis were formulated and tested at the 5% level of significance. The research adopted a positivist approach and deployed both correlational and descriptive design methods. The study targeted the entire population of 47 counties in Kenya and data for five years amounting to 235 data points was collected. Preliminary statistical tests were conducted and included both multiple regression analysis and correlational testing in order to determine the direction and strength of the relationships. The requisite data for study was easily available in various government offices and libraries. Measurement of the dependent variable, performance was based on proxy indicators identified as standards of living, poverty index, expenditure per capita and county contribution to national poverty. The composite indicator was the county wellbeing index while the independent variable comprised of equitable share of national government revenue, local revenue collection and conditional/unconditional transfer grants to County Governments. To test the hypothesis, both multiple and hierarchical linear regression were conducted as well as path analysis. The results indicate that there is a statistically significant relationship between fiscal decentralization and county governments performance in Kenya. Further, results indicate that the relationship between fiscal decentralization and county performance is not significantly mediated by allocative efficiency and that the relationship between fiscal decentralization and county governments performance was significantly moderated by public governance. In sum, there is a statistically significant joint effect of fiscal decentralization, allocative efficiency and public governance on the performance of county governments in Kenya. The study findings are valuable as they provide evidence which serves as a basis for policy formulation and practice by both national and county governments. The results for three hypotheses add value by corroborating theoretical predictions even though one hypothesis failed to corroborate. The findings help to assess the applicability of a number of theories such as decentralization theorem, pareto optimality in informing and shaping policy in the area of fiscal decentralization and performance of subnational governments in Kenya in order to make better predictions and judgements. A key limitation however is the challenge of attribution of effects owing to the activities of other players like national government, NGOs, and the private sector.