Fiscal Decentralization and Economic Growth

Abstract

The modern fiscal decentralization development across the world has been in part driven by assertions of a supposed ‘economic dividend’ linked with local spending. There is, however, little empirical evidence to validate these assertions in Kenya. It is against this background that this research was carried out to estimate the end product of local fiscal decentralization on local economic growth in 47 Kenyan counties using secondary panel data set. Using the ARDL estimation technique the long-run and error correction estimates of the model were generated. The findings revealed that increased fiscal decentralization through recurrent expenditure stimulates local economic activities hence confirming the Keynesian hypothesis. This study recommends the need for policymakers to put in place policies and strategies that will improve fiscal decentralization to boost productivity and economic growth in counties.

Keywords: Economic Growth, Fiscal Decentralization, Capital, Recurrent, Kenya, Counties

JEL Classification: E62, O23, H54, G51