Revenue Assignment and Economic Growth in Kenya’s County Governments: Does Fiscal Management Efficiency Matter?

Fiscal decentralisation has transformed the structure of public finance management by transferring selected fiscal responsibilities from central governments to sub-national governments. In Kenya, the establishment of county governments through the Constitution of Kenya 2010 created a framework where counties are expected to mobilize resources, plan development interventions and promote local economic growth. Revenue assignment represents a critical dimension of fiscal decentralisation because it determines the extent to which counties can generate own-source revenue and exercise fiscal autonomy. However, the existence of revenue authority does not automatically translate into economic growth. The effectiveness of revenue assignment depends on institutional capacity, accountability mechanisms and the efficiency with which public resources are planned, allocated and utilized. This study therefore examined the effect of revenue assignment on economic growth and established the moderating effect of fiscal management efficiency on this relationship among Kenya’s county governments. The study adopted an explanatory longitudinal panel research design covering all 47 county governments in Kenya for the period 2013/2014 to 2022/2023, resulting in 470 county-year observations. Secondary data were obtained from county government financial reports, Gross County Product (GCP) statistics, County Budget Implementation Review Reports, and audit reports from relevant public institutions. Revenue assignment was operationalized using county own-source revenue performance, economic growth was measured using annual Gross County Product growth, while fiscal management efficiency was measured using indicators related to budget absorption, financial reporting compliance, procurement adherence and accountability practices. Data were analyzed using descriptive statistics, correlation analysis, panel regression analysis and hierarchical regression to test the moderating effect. The findings established that revenue assignment had a positive and statistically significant effect on economic growth among Kenya’s county governments (β = 0.328, p < 0.001). The direct effects model explained approximately 50.2% of the variation in county economic growth (R² = 0.502). Further, the moderation analysis revealed that fiscal management efficiency significantly strengthened the relationship between revenue assignment and economic growth (β = 5.165, p < 0.01), with the inclusion of the interaction term increasing the explained variance by ΔR² = 0.083. This indicates that counties with stronger fiscal management systems derive greater economic benefits from revenue assignment compared with counties with weaker financial management capacity. The study concludes that revenue autonomy is an important driver of county economic growth, but its effectiveness depends on the quality of fiscal management systems supporting resource mobilization and utilization. Therefore, county governments should combine revenue enhancement strategies with improved budgeting practices, procurement compliance, financial accountability, expenditure controls and effective implementation of development programmes. Strengthening fiscal management efficiency is essential for converting decentralised revenue powers into sustainable economic development outcomes

Fiscal decentralisation; revenue assignment; fiscal management efficiency; economic growth; county governments; moderation; Kenya.

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