Intergovernmental fiscal transfers in Kenya: the evolution of revenue sharing under new devolution in a quasi-federal system

From early independence negotiations, Kenyans have debated how to organize the public sector in their ethnically diverse country. A brief early experiment with federalism was supplanted by a centralized system that dominated for five decades. When political economy dynamics led to the adoption of a new constitution in 2010, Kenya undertook a transformative devolution to a single tier of subnational government at the county level. A foundational element of the new system is a significant intergovernmental fiscal transfer system intended both to empower the new county governments and to redress historical geographic and ethnic inequities in the distribution of public resources. The initial largely unconditional transfer system has generated positive effects, but it has also faced consequential challenges. This chapter reviews experience with intergovernmental transfers to date as well as some of the ongoing debates and potential options for improving the evolving transfer system and other interrelated elements of fiscal decentralization in Kenya.