Central–local transfers in Kenya: Options for incremental reform

Abstract

Until 2000, Kenya was unique among nations by having no formal means for sharing central government revenues with local authorities. Urban and rural governments alike had to cover their capital and current expenses on roads, education, public health, etc., entirely from own resources. This paper discusses the constructive role transfers can and should play in Kenyan development and the tradeoffs they impose between resource benefits and behavioral incentives. It then recommends several specific proposals for transfer reform, particularly regarding local road maintenance and basic equalization, along with the implementation mechanisms needed to address associated legal, institutional, and administrative issues. In addition, an action plan for a limited grant program is proposed for the short term. Acknowledgments