Fiscal Decentralization in Kenya: The Constituency Development Fund and the Growth of Government

This paper explores the financial implications of fiscal decentralization policies on the central government's operating budget in Kenya. The paper evaluates how devolved funds under the constituency development fund (CDF) have been utilized to start healthcare capital projects (clinics) at the local level. The study finds that fiscal decentralization has promoted allocative efficiency and equity but at a cost of exporting tax burdens (operations and maintenance) to the central government emanating from capital projects implemented at the local level. The exported tax burdens have policy implications and call for reforms of the CDF program to reflect a benefit-expenditure structure.