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