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Subnational Government Budgets and Resource Revenues in Indonesia: Indications of Resource Blessings?

Author

Listed:
  • Ridwan D. Rusli
  • Wessel N. Vermeulen

Abstract

We examine the economic consequences of resource extraction and the associ-ated revenue windfalls on subnational government revenues and spending patterns. Making use of Indonesia’s fiscal sharing rules and an offshore oil and gas produc-tion instrument, we find a positive impact of resource revenues on the center-local balancing funds including the general allocation fund, despite the latters’ fiscal re-balancing purposes. Fiscal windfalls from resource extraction increase public sector spending on capital and infrastructure projects as well as public goods and services, with positive spillover benefits on local tax revenues. At the same time spending on personnel and administration increases less and decrease as percentage of total expenditures. Interaction with district economic governance index data indicates enhanced infrastructure spending but also increases in the balancing funds.

Suggested Citation

  • Ridwan D. Rusli & Wessel N. Vermeulen, 2019. "Subnational Government Budgets and Resource Revenues in Indonesia: Indications of Resource Blessings?," OxCarre Working Papers 222, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    • Handle: RePEc:oxf:oxcrwp:222
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    More about this item

    Keywords

    Resource extraction; fiscal- and direct economic spillovers; decen¬tralization; subnational government budgets; South-East Asia; Indonesia;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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