An empirical review of factors affecting revenue collection in nairobi county, kenya

Empirical review


Revenue Diversification

The application of different sources of revenues ensures the predictability and stability of sources of revenue in public finance. It as well gives the implication that no one source of finance has control or is relied upon at the expense of other sources of finance. This ensures that there is continuity in the service delivery in the public sector as income flow is consistent (Oates, 2005).

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Expanding the revenue sources has the advantage of accommodating new growing spending requirement of a local government in terms of new judicial regulations, political actions and ever changing economic cycle in a government. To cope with these emerging challenges therefore a diversified and broad base of revenue source should be established (Hendrick, 2002).

However other scholars such as Carroll (2009) argue that having a diversified revenue structure has the effects of huge costs associated with their administration and therefore costly to the government. This negatively impacts on the fiscal performance of county government where money is rather taken to administration of the tax system itself and not bringing more funds to the county government to meet their budgetary requirements.

Ebrill, Stotsky and Gropp (2001) established the positive impact of revenue diversification on fiscal performance. In this study the researchers uses quantitative data in revealing the results that revenue diversification through ensuring that there is no source of public revenue that is relied on primarily on the expense of the other forms of revenue has positive impact which they measured using revenue adequacy, efficiency and equity in delivering of services at the county government and level of spending. Other study by Yan (2008) on effect of revenue diversification in fiscal performance established that revenue diversification has the effect of ensuring efficiency in the county government. The result of the study indicated that revenue diversification ensures a stronger financial stand and therefore better financial performance.