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The Impact of Fiscal and Political Decentralization on Local Public Investments in Indonesia

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  • Kis-Katos, Krisztina

    ()
    (University of Freiburg)

  • Sjahrir, Bambang Suharnoko

    ()
    (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 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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7884.

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Length: 34 pages
Date of creation: Jan 2014
Date of revision:
Handle: RePEc:iza:izadps:dp7884

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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., 2014. "Administrative Overspending in Indonesian Districts: The Role of Local Politics," World Development, Elsevier, Elsevier, vol. 59(C), pages 166-183.
  2. Barankay, Iwan & Lockwood, Ben, 2006. "Decentralization and the Productive Efficiency of Government: Evidence from Swiss Cantons," IZA Discussion Papers 2477, Institute for the Study of Labor (IZA).
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  7. Khaleghian, Peyvand, 2004. "Decentralization and public services: the case of immunization," Social Science & Medicine, Elsevier, Elsevier, vol. 59(1), pages 163-183, July.
  8. Benjamin A. Olken, 2005. "Monitoring Corruption: Evidence from a Field Experiment in Indonesia," NBER Working Papers 11753, National Bureau of Economic Research, Inc.
  9. Fisman, Raymond & Gatti, Roberta, 2002. "Decentralization and corruption: evidence across countries," Journal of Public Economics, Elsevier, Elsevier, vol. 83(3), pages 325-345, March.
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  11. Skoufias, Emmanuel & Narayan, Ambar & Dasgupta, Basab & Kaiser, Kai, 2011. "Electoral accountability, fiscal decentralization and service delivery in Indonesia," Policy Research Working Paper Series 5614, The World Bank.
  12. Esther Duflo, 2000. "Schooling and Labor Market Consequences of School Construction in Indonesia: Evidence from an Unusual Policy Experiment," NBER Working Papers 7860, National Bureau of Economic Research, Inc.
  13. Fitria Fitrani & Bert Hofman & Kai Kaiser, 2005. "Unity in diversity? The creation of new local governments in a decentralising Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 41(1), pages 57-79.
  14. Robalino, David A. & Picazo, Oscar F. & Voetberg, Albertus, 2001. "Does fiscal decentralization improve health outcomes? - evidence from a cross-country analysis," Policy Research Working Paper Series 2565, The World Bank.
  15. Sparrow, R.A. & Pradhan, M.P. & Kruse, I., 2009. "Marginal benefit incidence of public health spending: evidence from Indonesian sub-national data," ISS Working Papers - General Series, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague 18706, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
  16. 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, MIT Press, vol. 124(2), pages 735-769, May.
  17. Sjahrir, Bambang Suharnoko & Kis-Katos, Krisztina & Schulze, Günther G., 2013. "Political budget cycles in Indonesia at the district level," Economics Letters, Elsevier, Elsevier, vol. 120(2), pages 342-345.
  18. Lucie Gadenne & Monica Singhal, 2013. "Decentralization in Developing Economies," NBER Working Papers 19402, National Bureau of Economic Research, Inc.
  19. Besley, Timothy & Coate, Stephen, 2003. "Centralized versus decentralized provision of local public goods: a political economy approach," Journal of Public Economics, Elsevier, Elsevier, vol. 87(12), pages 2611-2637, December.
  20. International Monetary Fund, 2001. "Fiscal Decentralization and Governance," IMF Working Papers 01/71, International Monetary Fund.
  21. Galasso, Emanuela & Ravallion, Martin, 2005. "Decentralized targeting of an antipoverty program," Journal of Public Economics, Elsevier, Elsevier, vol. 89(4), pages 705-727, April.
  22. Alderman, Harold, 2002. "Do local officials know something we don't? Decentralization of targeted transfers in Albania," Journal of Public Economics, Elsevier, Elsevier, vol. 83(3), pages 375-404, March.
  23. Galiani, Sebastian & Gertler, Paul & Schargrodsky, Ernesto, 2008. "School decentralization: Helping the good get better, but leaving the poor behind," Journal of Public Economics, Elsevier, Elsevier, vol. 92(10-11), pages 2106-2120, October.
  24. Pranab Bardhan, 2002. "Decentralization of Governance and Development," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(4), pages 185-205, Fall.
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