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The New Indonesian Equalisation Transfer

  • Blane Lewis
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    This paper examines the intergovernmental general purpose equalisation transfer (DAU) that began operating in 2001. First, a description of the mechanism highlights the significant distributional role played by the 'balancing factor' relative to the 'formula', and the key differences in distribution procedures for districts/municipalities and provinces. Second, the approach and methods are empirically analysed and evaluated. The sums available to the DAU appear more than sufficient to meet regional governments' net expenditure requirements, at least in aggregate, and given some caveats. The allocation mechanism has some design flaws in both its structure and the methods it uses to operationalise expenditure needs and fiscal capacity. Third, an examination of the 'equalising' effects of the transfer scheme shows that conclusions about equalisation depend very much on how one defines and operationalises the concept; policy makers need to be clear about what they want the DAU to accomplish in respect of equalisation.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/00074910152669163
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    Article provided by Taylor & Francis Journals in its journal Bulletin of Indonesian Economic Studies.

    Volume (Year): 37 (2001)
    Issue (Month): 3 ()
    Pages: 325-343

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    Handle: RePEc:taf:bindes:v:37:y:2001:i:3:p:325-343
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    1. Anwar Shah & Zia Qureshi & Amaresh Bagchi & Brian Binder & Heng-fu Zou, 1994. "Intergovernmental fiscal relations in Indonesia: issues and reform options," CEMA Working Papers 474, China Economics and Management Academy, Central University of Finance and Economics.
    2. Anne Booth, 1999. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(3), pages 3-38.
    3. Christopher Silver & Iwan Azis & Larry Schroeder, 2001. "Intergovernmental Transfers And Decentralisation In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 345-362.
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