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The impact of fiscal and political decentralization on local public investments in Indonesia

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  • Krisztina Kis-Katos
  • Bambang Suharnoko Sjahrir

    ()
    (Department of International Economic Policy, University of Freiburg)

Abstract

We investigate the effects of the Indonesian decentralization and democratization process on budget allocation at the sub-national level. Based on panel data for 271 Indonesian districts for the years of 1994 to 2009, we address the determinants of local investment expenditures in public infrastructure in the sectors of education, health, and physical infrastructure. We find that after the dramatic expenditure decentralization of 2001, districts with relatively lower levels of public infrastructure started to invest more in these sectors. In contrast to the marked budgeting changes following the fiscal and administrative decentralization, we find no consistent effects of the democratization process on local public investments. Our results reflect initial improvements in local targeting but show no evidence of increasing electoral accountability.

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File URL: http://www.vwl.uni-freiburg.de/iwipol/REPEC/fre/wpaper/DP25_Kis-Katos_Sjahrir_The_Impact_of_Fiscal_and_Political_Decentralization.pdf
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Bibliographic Info

Paper provided by Department of International Economic Policy, University of Freiburg in its series Discussion Paper Series with number 25.

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Length: 32 pages
Date of creation: Jan 2014
Date of revision: Jan 2014
Handle: RePEc:fre:wpaper:25

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Keywords: Decentralization; democratic elections; budget allocation; Indonesia;

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  1. Sjahrir, Bambang Suharnoko & Kis-Katos, Krisztina & Schulze, Günther G., 2013. "Political budget cycles in Indonesia at the district level," Economics Letters, Elsevier, vol. 120(2), pages 342-345.
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  19. International Monetary Fund, 2001. "Fiscal Decentralization and Governance," IMF Working Papers 01/71, International Monetary Fund.
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  21. Martina Björkman & Jakob Svensson, 2009. "Power to the People: Evidence from a Randomized Field Experiment on Community-Based Monitoring in Uganda," The Quarterly Journal of Economics, MIT Press, vol. 124(2), pages 735-769, May.
  22. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, vol. 87(12), pages 2611-2637, December.
  23. Alderman, Harold, 2002. "Do local officials know something we don't? Decentralization of targeted transfers in Albania," Journal of Public Economics, Elsevier, vol. 83(3), pages 375-404, March.
  24. Bambang Suharnoko Sjahrir & Krisztina Kis-Katos & Guenther G. Schulze, 2013. "Administrative overspending in Indonesian districts: The role of local politics," Discussion Paper Series 24, Department of International Economic Policy, University of Freiburg, revised Jul 2013.
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