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Fiscal Decentralization Impact on Government Size

In: Proceedings of the 9th International Conference on Accounting, Management, and Economics 2024 (ICAME 2024)

Author

Listed:
  • Nadhira Afdalia

    (Hasanuddin University)

  • Basri Hasanuddin

    (Hasanuddin University)

  • Muhammad Yusri Zamhuri

    (Hasanuddin University)

  • Agussalim Agussalim

    (Hasanuddin University)

Abstract

Fiscal decentralization has been implemented in Indonesia for more than two decades. This study, based on the Leviathan theory of Brennan and Buchanan, examines the impact of fiscal decentralization on government size. The Leviathan theory states that decentralization can lessen the central government’s propensity to collect taxes in excess. This study’s measurement of fiscal decentralization uses the variables of expenditure decentralization, revenue decentralization, and vertical imbalance as independent variables and government size as the dependent variable. This research uses panel data from 34 provinces in Indonesia from 2013 to 2023. The research uses secondary data from the Regional Revenue and Expenditure Budget (APBD) from the Directorate General of Financial Balance website. (DJPK). The impact of independent variables on the dependent variable is examined using the multiple linear regression analysis approach. Empirical results show that the variable of expenditure decentralization increases government size, while the variable of vertical imbalance decreases government size. This finding does not align with the Leviathan hypothesis, whereas revenue decentralization reduces government size, which aligns with the Leviathan hypothesis of Brennan and Buchanan.

Suggested Citation

  • Nadhira Afdalia & Basri Hasanuddin & Muhammad Yusri Zamhuri & Agussalim Agussalim, 2025. "Fiscal Decentralization Impact on Government Size," Advances in Economics, Business and Management Research, in: Mursalim Nohong & Fitra Roman Cahaya & Phung Minh Tuan & Arifuddin Mannan & Anas Iswanto Anwar & Ria (ed.), Proceedings of the 9th International Conference on Accounting, Management, and Economics 2024 (ICAME 2024), pages 1213-1222, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-758-8_99
    DOI: 10.2991/978-94-6463-758-8_99
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