Macroeconomic Drivers of Subnational Debt: Evidence from Kenyan Counties after COVID-19
Ruth Jepchirchir Kiprop
*
Department of Economics, University of Eldoret, Kenya.
Elijah Ng’eno
Department of Economics, University of Eldoret, Kenya.
Paul Odwori
Department of Economics, University of Eldoret, Kenya.
*Author to whom correspondence should be addressed.
Abstract
This study examined how economic growth, tax revenue, government expenditure, and corruption levels affect the indebtedness of county governments in post-COVID-19 Kenya. It was based on the theory of debt accumulation and employed a fixed effects regression model. The model's results revealed that government expenditure (coefficient = 0.1724, p < 0.01) and the corruption rate (coefficient = 0.2611, p < 0.01) had significant positive effects on indebtedness. Tax revenue also had a significant positive impact (coefficient = 0.2982, p < 0.01), while economic growth was statistically insignificant (coefficient = -0.0284, p = 0.099). The study concludes that excessive government spending and corruption are the primary drivers of county indebtedness in the post-COVID-19 period. It recommends enhancing fiscal discipline, enforcing strict controls on expenditure, strengthening anti-corruption measures, and improving the mobilization of own-source revenue to reduce reliance on debt and ensure sustainable financing for counties.
Keywords: Indebtedness, macroeconomic determinants, Kenya, public debt, Covid-19