Fiscal Decentralization and Determinants of Property Tax Performance in Kenya: Cross-County Analysis

Abstract

This study investigates determinants of property tax performance across 47 counties in Kenya. We aim to contribute to limited empirical research in developing countries on factors contributing to low property tax performance. Though property tax is considered ideal for sub-national governments, its performance in Kenya is not only low but its share in both gross domestic product and own-source revenues are declining. There is growing consensus among fiscal decentralization experts that adequate own-source revenue for sub-national governments is a precondition for successful fiscal decentralization. In 2010 Kenya promulgated a new Constitution that mandates sub-national governments with more fiscal responsibilities; hence performance of property tax in Kenya is of immense policy interests than ever before. Past policy efforts to reform property tax in Kenya has hardly yielded positive results. The results show that urbanization, population density and administration capacity are key factors explaining property tax performance across the Kenyan counties. The results have implications for developing countries in terms of design of horizontal revenue sharing, and the need to enhance administration capacity for sub-national governments.

Key words: Property tax, developing countries, Kenya