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Formulating Regional Competitiveness Fiscal Policy based upon Leverage Factors for Indonesian Data

Author

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  • Kindy R. Sjahrir

    (Fiscal Policy Office, Ministry of Finance. Republic of Indonesia)

Abstract

Given Indonesia's competitiveness version of the Global Competitiveness Index (GCI) released by the World Economic Forum (WEF) has dropped from 38 in 2013-2014 to 41 in 2015-2016, the right strategy is needed so that competitiveness is not continues to decline. Indonesia's geographical condition consisting of 13,000 islands requires increased regional competitiveness to improve national competitiveness. The Regional Economic Governance Index i.e. Tata Kelola Ekonomi Daerah (TKED) as an indicator of economic management in the area of the Regional Autonomy Monitoring Committee (KPPOD) is an example of a proxy option for measures of regional competitiveness. The LEG index compilation methodology is similar to the World Bank's GCI index and Ease of Doing Business (EoDB), so this paper forms the premise that increasing and correcting the LEG index imbalance through the Regional Incentive Fund (DID) will boost regional competitiveness and also lift power Indonesia's global competitiveness. Fiscally, regional competitiveness is also marked by the expansion and deepening of the tax base. The framework of changes in this text is to transform the Macroeconomic Policy - Principal of Fiscal Policy (KEM-PPKF) which originally only targeted high economic growth and equitable distribution of income at the national level with an output orientation to change competitiveness-quality economic growth to the regional level with outcome orientation. To target increasing regional competitiveness, synchronization of central and regional budgeting will be carried out to transform the regional competitiveness criteria in the Regional Incentive Fund and encourage more efficient and accountable regional spending by synchronizing central and regional budgeting data through DID allocations and the synergy of centralized data exchanges. This paper was carried out with the approach of (1) robust study of regional leveraging factors, (2) sharpening of fiscal policy reforms and central-regional budgeting synergies, and (3) the conventions of all stakeholders in the Ministry of Finance's bureaucratic reform. This paper considers Sims (2008) 's argument that strong policy making requires that policy models be treated as "robust models" which include features (1) based on a standard theory or law, (2) can be supported by valid data, and (3) consistently giving the same results. Based on the results of data processing and regression using panel model, some conclusions are obtained. Provincial TKED affects productivity (measured using TPF). In general, the increase in provincial TKED will increase productivity, namely in Management with regard to (1). Land Access (Access); (2). PPUS; and (3) Infrastructure. This proves that good management or local governance will increase productivity. Most of the increase in the TKED index will increase economic productivity. It was confirmed that the outcomes that region with good TKED, yet currently incurring TFP gap have a great potential to boost its GRDP growth should it be assisted thru additional DID (Dana Insentif Daerah) within budgetary allocation processes.

Suggested Citation

  • Kindy R. Sjahrir, 2018. "Formulating Regional Competitiveness Fiscal Policy based upon Leverage Factors for Indonesian Data," Working Papers in Economics and Development Studies (WoPEDS) 201804, Department of Economics, Padjadjaran University, revised Dec 2018.
    • Handle: RePEc:unp:wpaper:201804
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    File URL: http://ceds.feb.unpad.ac.id/wopeds/201804.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal Policy; Indonesian Data;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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