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Local Budget Resilience in Times of COVID-19 Crisis: Evidence from Indonesia

Author

Listed:
  • Nauli Aisyiyah Desdiani

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia)

  • Syahda Sabrina

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia)

  • Meila Husna

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia)

  • Amalia Cesarina Budiman

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia)

  • Fachry Abdul Razak Afifi

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia)

  • Alin Halimatussadiah

    (Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia
    Department of Economics, Universitas Indonesia, Depok City 16424, Indonesia)

Abstract

The COVID-19 pandemic has put immense pressure on the fiscal situation. Central revenues have decelerated while expenditures had to be increased to facilitate economic recovery. Local governments faced even harder challenges as intergovernmental transfers were reduced and room for mobilizing alternative finances was limited. This paper employs qualitative and secondary data analysis on local budget and fiscal capacities at the subnational level in Indonesia to find insights into the implications and responses of the provincial government in a decentralized economy during the pandemic. Provinces with a high dependence on intergovernmental transfer are struggling to adopt a countercyclical mitigative fiscal policy. However, provinces with high local own-source revenue have suffered the most during the crisis as low economic activity reduced tax revenues and indirectly lead to lower fiscal space. As fiscal policy is critical to containing the pandemic and facilitating recovery, this paper proposes several strategies toward a more sustainable fiscal policy for rebuilding local government capacity in the medium-to-long term in the aftermath of the crisis.

Suggested Citation

  • Nauli Aisyiyah Desdiani & Syahda Sabrina & Meila Husna & Amalia Cesarina Budiman & Fachry Abdul Razak Afifi & Alin Halimatussadiah, 2022. "Local Budget Resilience in Times of COVID-19 Crisis: Evidence from Indonesia," Economies, MDPI, vol. 10(5), pages 1-18, May.
    • Handle: RePEc:gam:jecomi:v:10:y:2022:i:5:p:108-:d:810652
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    References listed on IDEAS

    as
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    6. Robert Sparrow & Teguh Dartanto & Renate Hartwig, 2020. "Indonesia Under the New Normal: Challenges and the Way Ahead," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 56(3), pages 269-299, September.
    7. Whitney Afonso, 2013. "Coping With the Great Recession: Theory and Practice for County Governments," International Journal of Public Administration, Taylor & Francis Journals, vol. 36(11), pages 768-779.
    8. Phuong Duy Nguyen & Duc Hong Vo & Chi Minh Ho & Anh The Vo, 2019. "Fiscal Decentralisation and Economic Growth across Provinces: New Evidence from Vietnam Using a Novel Measurement and Approach," JRFM, MDPI, vol. 12(3), pages 1-13, September.
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    Cited by:

    1. Nauli A. Desdiani & Fachry Abdul Razak Afifi & Amalia Cesarina & Syahda Sabrina & Meila Husna & Rosalia Marcha Violeta & Adho Adinegoro & Alin Halimatussadiah, 2021. "Climate and Environmental Financing at Regional Level: Amplifying and Seizing the Opportunities," LPEM FEBUI Working Papers 202167, LPEM, Faculty of Economics and Business, University of Indonesia, revised 2021.

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