UCLA

Until 2000, Kenya was unique in 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, and so on, 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 behavioural incentives. It then recommends several specific proposals for transfer reform, particularly regarding local road maintenance and basic equalisation, along with the implementation mechanisms needed to address associated legal, institutional, and administrative issues. In addition, an action plan for a limited grant programme is proposed for the short term.