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Fiscal Decentralization and Government Expenditure Efficiency in Indonesia: A Malmquist Productivity Index

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  • Anisah ALFADA

    (Waseda University, Japan)

Abstract

This research examines regional government performance in Indonesia’s provinces after the implementation of fiscal decentralization in 2001 using a two-stage approach. First, extensive input and output data are utilized to measure government productivity and efficiency indices using a Malmquist productivity index (MPI) for four significant expenditures for the 2004-2015 period: infrastructure, education, health and social protection. Second, the relationship between the degree of fiscal decentralization and the first-stage productivity scores is analyzed using a Tobit model. This study provides extensive and internationally comparable data that distinguish it from existing studies in Indonesia because appropriate input and output data are the significant elements in measuring government expenditure efficiency. From the estimation results, the degree of fiscal decentralization is found to promote government expenditure efficiency. Tax revenue collected by regional governments will support government expenditure efficiency in the infrastructure, education and health sectors; however, the degree of fiscal decentralization seems to negatively affect the government expenditure efficiency in the social protection sector. Therefore, the methodology constructed in this research can be a prominent instrument for the government to upgrade regional government performance in Indonesia.

Suggested Citation

  • Anisah ALFADA, 2019. "Fiscal Decentralization and Government Expenditure Efficiency in Indonesia: A Malmquist Productivity Index," Expert Journal of Economics, Sprint Investify, vol. 7(1), pages 45-57.
    • Handle: RePEc:exp:econcs:v:7:y:2019:i:1:p:45-57
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    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General

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