Fiscal Decentralization and Economic Growth in Kenya: An Autoregressive Distributed Lag (ARDL) Approach

This study investigated the effects of fiscal decentralization on economic growth in Kenya using time series data for the period 1991 – 2023. Both theoretical and empirical literature on the effects of fiscal decentralization on economic growth is controversial and inconclusive. This study complements this subject by looking at a composite measure of fiscal decentralization and examining other factors that might moderate the effects of fiscal decentralization on economic growth. Within the framework of the Keynesian model, the Autoregressive Distributed Lag model was used to estimate the short-run and long-run effects of fiscal decentralization on economic growth in Kenya. The paper employed a Composite measure of fiscal decentralization to measure the degree of fiscal decentralization in Kenya that combines both expenditure and revenue decentralization, since they are implemented simultaneously. According to the study's findings, fiscal decentralization has benefited Kenya's economic growth both immediately and over time. The findings' policy implications include that the federal government must grant county governments fiscal autonomy while establishing a system to impose budgetary restraints and hold them responsible for their spending.