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Government Fragmentation and Economic Growth

Author

Listed:
  • Traviss Cassidy

    (University of Alabama)

  • Tejaswi Velayudhan

    (University of Michigan)

Abstract

We estimate the impact of local government fragmentation on economic activity in Indonesia from 2000 to 2014, when the number of districts increased by 50%. Exploiting idiosyncratic variation in the timing of district splits, we find that fragmentation reduces district GDP in the short term despite large increases in central transfers. The GDP decline is larger in “child” districts that acquire a new capital and government. Furthermore, splitting districts focus spending on administration without improving public services or reducing red tape and corruption. The downsides of fragmentation due to economies of scale and low bureaucratic capacity outweigh potential upsides.

Suggested Citation

  • Traviss Cassidy & Tejaswi Velayudhan, 2026. "Government Fragmentation and Economic Growth," The Review of Economics and Statistics, MIT Press, vol. 108(2), pages 372-389, March.
    • Handle: RePEc:tpr:restat:v:108:y:2026:i:2:p:372-389
    DOI: 10.1162/rest_a_01493
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    Cited by:

    1. is not listed on IDEAS
    2. Cassidy, Traviss, 2017. "Revenue Persistence and Public Service Delivery," MPRA Paper 114464, University Library of Munich, Germany, revised 06 Sep 2022.

    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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