Fiscal Decentralization and the Efficiency of Public Service Delivery - A Case Study of Homabay County

Abstract

This study aims to examine how fiscal decentralization affects the effectiveness of public service delivery in Homabay County. It uses a stochastic frontier method to estimate time-varying efficiency coefficients and investigates the effects of fiscal decentralization on those efficiency coefficients. The results show that, in some cases, fiscal decentralization can increase the effectiveness of public service delivery. Initially, the decentralization process needs appropriate political and institutional conditions or goodwill. Second, it would seem that good outcomes call for a high enough degree of expenditure decentralization. Third, there must be sufficient decentralization of both revenue and expenditure. Lastly, fiscal decentralization could make public service delivery less effective if these conditions are not met. The paper recommends the need for developing countries to adopt fiscal decentralization because it helps subnational governments raise revenues through enhancing tax administration and collection by the government as well as taxpayer compliance. It also supports legislation and policy changes that give subnational governments more fiscal authority.