Fiscal Decentralization and Energy Consumption: A Race to Decentralization

Abstract

This study examines the effect of fiscal decentralization, in the form of shifting responsibilities of tax revenues, expenditure and planning from the central government to lower local governments, as well as rapidly rising income, on energy consumption for 47 Kenyan counties over the period 2013 to 2017. This study employs panel methodology and the ordinary least squares regression model to investigate this effect in Kenya. The index of fiscal decentralization is measured by the ratio of sub-national revenue to total public revenue. This analysis has policy implications for economic growth, poverty level, race to energy decentralization and energy demand. The study findings demonstrate that higher fiscal decentralization is associated with higher energy consumption in Kenya; the internally generated revenue enhances electricity demand through improved energy infrastructure, energy innovations and connectivity. This can also be attributed to economic resources, administration, service delivery, and infrastructure planning being decentralized to the sub-national level. This underscores the need to provide policies and strategies that will guide the integration of the energy sector into development programmes, plans and processes at the sub-national level to advance energy system decentralization, connectivity and cumulative energy consumption. Keywords: Energy consumption, Decentralization, Energy efficiency, Sub-national, Taxation DOI: 10.7176/EJBM/14-22-07 Publication date: November 30 th 2022