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Fiscal decentralisation, local institutions and public good provision: evidence from Indonesia

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  • Pal, Sarmistha
  • Wahhaj, Zaki

Abstract

Using data from the Indonesian Family Life Surveys, we study the impact of fiscal decentralisation in Indonesia on local public spending across communities characterised by different types of informal and formal institutions. Our results provide new evidence that fiscal decentralisation led to a significant increase in community spending on social infrastructure (health and education) in communities which observed strict adherence to customary laws and had a tradition of local democracy. We argue that investment in transport and communication facilitates exchange with outsiders and improves the outside options of community members, thus making it more difficult to sustain intra-community cooperation. Consequently, communities which enjoy a high level of cooperation in collective activities benefit less from investing in transport and communication and are more inclined to invest in social infrastructure.

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  • Pal, Sarmistha & Wahhaj, Zaki, 2017. "Fiscal decentralisation, local institutions and public good provision: evidence from Indonesia," Journal of Comparative Economics, Elsevier, vol. 45(2), pages 383-409.
    • Handle: RePEc:eee:jcecon:v:45:y:2017:i:2:p:383-409
    DOI: 10.1016/j.jce.2016.07.004
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    1. Luis Diaz-Serrano & Enric Meix-Llop, 2019. "Decentralization and the quality of public services: Cross-country evidence from educational data," Environment and Planning C, , vol. 37(7), pages 1296-1316, November.
    2. Samuel Bazzi & Matthew Gudgeon, 2021. "The Political Boundaries of Ethnic Divisions," American Economic Journal: Applied Economics, American Economic Association, vol. 13(1), pages 235-266, January.
    3. Maleke FOURATI & Antonio ESTACHE, 2020. "Infrastructure Provision, Politics And Religion: Insights From Tunisia'S New Democracy," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 91(1), pages 29-53, March.
    4. Anirban Mitra & Sarmistha Pal, 2020. "Democratisation under Diversity: Theory and Evidence from Indonesian Communities," Studies in Economics 2003, School of Economics, University of Kent.
    5. Jahen F. Rezki, 2022. "Political competition and economic performance: evidence from Indonesia," Economics of Governance, Springer, vol. 23(2), pages 83-114, June.
    6. Díaz Serrano, Lluís & Meix Llop, Enric, 2018. "Decentralization and the Quality of Public Services: Cross-Country Evidence from Educational Data," Working Papers 2072/351581, Universitat Rovira i Virgili, Department of Economics.
    7. Antonio Estache, 2016. "Institutions for Infrastructure in Developing Countries: What We Know and the Lot We still Need to Know," Working Papers ECARES ECARES 2016-27, ULB -- Universite Libre de Bruxelles.
    8. Rezki, Jahen Fachrul, 2018. "Political Competition and Local Government Performance: Evidence from Indonesia," SocArXiv nekps, Center for Open Science.
    9. Anirban Mitra & Sarmistha Pal, 2022. "Ethnic Diversity, Social Norms and Elite Capture: Theory and Evidence from Indonesia," Economica, London School of Economics and Political Science, vol. 89(356), pages 947-996, October.

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    More about this item

    Keywords

    Decentralisation; Democratisation; Collective activities; Mutual co-operation; Traditional laws; Social and physical infrastructure; Local public spending; Indonesia;
    All these keywords.

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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