Do targeted intergovernmental fiscal transfers improve health outcomes? Evidence from Kenyan decentralization using the difference-in-differences technique

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BackgroundAs envisioned by the 2010 Constitution, Kenya implemented a devolved system of government in March 2013, setting up 47 counties and a corresponding number of local governments. These counties differed in their levels of development. While counties such as Nairobi and Kiambu led in social and economic indicators, others such as Turkana, Mandera and Wajir were at the bottom of the list. Keeping the between-country disparities and the need to remedy those disparities in mind, the national government used formula-based criteria to determine counties’ eligibility for the receipt of financial resources. On the basis of these criteria, counties were classified into marginalized and nonmarginalized counties. The marginalized counties were the 14 (of the 47) most socially and economically disadvantaged counties. These counties receive additional financial resources, which we call targeted intergovernmental fiscal transfers (i.e. fiscal transfers from the national government to county governments).MethodsWe used the difference-in-differences (DID) technique and fixed effects models to estimate the effects of these targeted intergovernmental fiscal transfers on human immunodeficiency virus (HIV) incidence and diarrhoea incidence.ResultsThe results revealed that the counties receiving those transfers experienced a statistically significant decline in the incidence of diarrhoea but had no impact on the incidence of HIV. Our study fills a major gap in causal evidence linking intergovernmental fiscal transfers to health outcomes, especially in the context of low–middle-income countries in a newly decentralized setting.ConclusionsOur results imply that targeted intergovernmental fiscal transfers may be effective at improving some subnational health outcomes, and therefore in reducing within-country health inequalities.