Fiscal Decentralization and Macroeconomics Stability in Kenya

This study investigated effects of the fiscal decentralization on macroeconomic stability in Kenya using time series data for the period 1991 – 2023. Specifically, analyzed the effects of fiscal decentralization on inflation and unemployment in Kenya. Literature on fiscal decentralization show that the association between fiscal decentralization and macroeconomic stability has been scantily analyzed and controversial. This study complements this subject by looking at other dimension of macroeconomic stability and examining other factors that might moderate the effects of fiscal decentralization on macroeconomic stability. Within the framework of a monetary phenomenon, the ordinary least square technique is used to estimate the effect of fiscal decentralization on macroeconomic stability in Kenya. The paper employed two indicators of fiscal decentralization, expenditure decentralization and revenue decentralization to measure the degree of fiscal decentralization in Kenya. The empirical results revealed while revenue decentralization appears to improve macroeconomic stability, expenditure decentralization had no significant effect on macroeconomic stability in Kenya. The policy implication of this findings is that national government needs to give fiscal autonomy to county governments while putting in place a mechanism to engender budget constraints and make county governments accountable for their expenditure.