Fiscal decentralization and intergovernmental fiscal relations reform have become nearly ubiquitous in developing countries. Performance, however, has often been disappointing in terms of both policy formulation and outcomes. The dynamics underlying these results have been poorly researched. Available literature focuses heavily on policy and institutional design concerns framed by public finance, fiscal federalism, and public management principles. The literature tends to explain unsatisfactory outcomes largely as a result of some combination of flawed design and management of intergovernmental fiscal systems, insufficient capacity, and lack of political will. These factors are important, but there is room to broaden the analysis in at least two potentially valuable ways. First, much can be learned by more robustly examining how national and local political and bureaucratic forces shape the policy space, providing opportunities for and placing constraints on effective and sustainable reform. Second, the analysis would benefit from moving beyond design to considering how to implement reform more strategically.
Jamie Boex and Paul Smoke
From early independence negotiations, Kenyans have debated how to organize the public sector in their ethnically diverse country. A brief early experiment with federalism was supplanted by a centralized system that dominated for five decades. When political economy dynamics led to the adoption of a new constitution in 2010, Kenya undertook a transformative devolution to a single tier of subnational government at the county level. A foundational element of the new system is a significant intergovernmental fiscal transfer system intended both to empower the new county governments and to redress historical geographic and ethnic inequities in the distribution of public resources. The initial largely unconditional transfer system has generated positive effects, but it has also faced consequential challenges. This chapter reviews experience with intergovernmental transfers to date as well as some of the ongoing debates and potential options for improving the evolving transfer system and other interrelated elements of fiscal decentralization in Kenya.