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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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    Cited by:

    1. Antonio Estache & Maleke Fourati, 2017. "Infrastructure Provision, Politics and Religion: Insights from Tunisia's New Democracy," Working Papers ECARES ECARES 2017-24, ULB -- Universite Libre de Bruxelles.
    2. Samuel Bazzi & Matthew Gudgeon, 2017. "The Political Boundaries of Ethnic Divisions," Boston University - Department of Economics - Working Papers Series WP2018-005, Boston University - Department of Economics.

    More about this item

    Keywords

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

    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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