Influence of Fiscal Federalism as Budget Efficacy on Household Income in Kenya

Catherine Ng’endo Munyua ,Stephen Muchina ,Beatrice Ombaka

doi:10.7176/ejbm/11-15-10

Abstract

The Theory of federalism suggests that a fiscal decentralization negatively affects the size of a government budget. Indeed, the size of the national budget in Kenya has been ballooning ever since the inception of fiscal decentralization. What is of concern to this study is its efficacy and ultimate effect on household income. The importance of the hypothesis of fiscal federalism was tested by adopting the Survey and Evaluation Program (NASSEP V) frame that the Kenya Bureau of Statistics currently operates to conduct household-based in Kenya. The study employed an inductive ex post facto cross sectional quantitative survey design. Secondary panel data was collected from County Treasuries while Primary data was collected through household surveys and Fiscal and Monetary Departments of county assemblies. The study established a significant association between budget efficacy and household income as indicated by a beta coefficient of 0.9021 and a p’ value of 0.000. The beta coefficient has positive sign, which indicates that there is a direct relationship between budget efficacy and household income. An increase in budget efficacy is expected to have a positive influence on household income. The findings of this study are expected to empower citizens through access of information on the real meaning and effects of fiscal asymmetric decentralization while policy makers will know the strength of the correlation between fiscal asymmetry and household effect in order to match monetary policy with the needs of lower government levels for implementation of the country’s financial framework. Keywords: Fiscal Federalism, Budget Efficacy, Household Effects. DOI : 10.7176/EJBM/11-15-10 Publication date :May 31 st 2019

Highlights

The concept of federalism was originally proposed by Brennan and Buchanan (1980)
It is imperative to analyze whether fiscal decentralization should be expanded in less developed economies considering that the average share of expenditure managed at the sub-national level is about 25 % compared to in developing economies, compared 40 % in advanced economies
O, (2014) posit that budgeting is a useful tool that can guide Devolved governments to evaluate whether governments policy and objectives are actualized especially poverty eradication which directly improves household effects which was the focal point of this study. ustapha, Rashid and Nasir (2011) assert that there is a close relationship between expenditure and household income which is in www.iiste.org continuum with this study focus

Summary

Introduction

The concept of federalism was originally proposed by Brennan and Buchanan (1980). The concept states that intrusion of government into economy can be restricted if responsibilities of government with respect to taxes and expenditures are decentralized. Fiscal decentralization has been defined as the process of shifting the responsibilities of revenue collection and expenditure execution from the central to sub-national authorities. The level of fiscal Decentralization is lower in developing than in advanced economies. It is imperative to analyze whether fiscal decentralization should be expanded in less developed economies considering that the average share of expenditure managed at the sub-national level is about 25 % compared to in developing economies, compared 40 % in advanced economies. The average shares on the revenue side are 23% and 37 % respectively

Objectives

Methods

Findings

Discussion

Conclusion