Factors affecting own source revenue performance among county governments in Kenya

Abstract

This study investigates Own Source Revenue (OSR) performance among Kenya’s 47 County Governments under the framework of fiscal decentralization. It assesses actual revenue collections from 2014 to 2024 against projected and potential targets. Grounded in Public Finance Theory and Fiscal Federalism Theory, the study uses descriptive research design and secondary data. Descriptive statistics and correlation analysis and regression analysis were used to evaluate own source performance, while content analysis was applied to examine institutional and political influences. The findings reveal persistent underperformance in OSR, averaging 65% of annual targets, with significant tax gaps and disparity among counties. A panel analysis found that higher equitable share transfers significantly increase the OSR performance in some counties as compared to others, suggesting that greater national funding potentially reduced local revenue efforts. Gross County Product (GCP) has a positive significance on own source revenue, indicating that stronger county economies tend to have higher own source revenue performance, while development expenditure showed limited no significance. Political factors, such as unethical governance measured by bribery rates, negatively impact OSR, as corruption erodes public trust and tax compliance. Institutionally, ICT investments demonstrate potential in increasing revenue performance by improving collection efficiency. Staff capacity measured by personnel cost showed a positive significant effect on own source revenue. An interactive variable between automation and staff capacity indicated a higher effect on OSR performance as compared to automation independently. Despite national policies promoting revenue reforms, implementation remains weak, with most counties lagging in updating property valuation rolls and adopting integrated revenue management systems. Key constraints include overreliance on intergovernmental transfers, weak institutional capacity, and political disincentives. Strategies like revenue mapping, automation, and legislative reforms showed promise but remained underutilized. The study concludes that enhancing OSR requires comprehensive institutional reforms, political will, and evidence-based forecasting. Recommendations include full implementation of national OSR policies, legislative alignment, automation, and performance-based intergovernmental incentives to ensure sustainable and equitable local fiscal autonomy.