Designing Kenya's 'first generation' revenue allocation among counties formula with imperfect data: an application of response surface methodology

Abstract

This paper investigates the design of Kenya's 'first generation' formula for sharing of revenue among 47 counties in the face of imperfect data and highly politicised issue of historical injustices in the past fiscal dispensation of a centralised system of government. We show that with limited quality data at subnational level, an innovative loss function in a response surface methodology offers an appropriate platform to generate initial weights of fiscal need factors that not only ensure redistributive justice and equity but are also perceived to be objective and fair by different political interest groups.