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Fiscal Transfers to Regional Governments in Indonesia

Author

Listed:
  • Fadliya
  • Ross H. McLeod

Abstract

This paper examines the design of the fiscal 'equalisation', or 'balancing', arrangements introduced in Indonesia in 2001, when many functions were devolved from the central to regional governments. This new and needlessly complex system of fiscal transfers was introduced hurriedly, and lacked clarity as to the objectives it was intended to serve, resulting in a number of seemingly undesirable outcomes. One such is the fragmentation of the Indonesian polity through widespread splitting of provinces and districts. Another is that there are huge differences among jurisdictions in the levels of per capita transfers, implying that recipient governments end up with vastly differing capacities to provide services such as education and health to their citizens. Although the relevant law and regulations have already been modified to some extent, the changes fall well short of the far-reaching adjustments needed if the scheme is to serve Indonesia's needs into the future.

Suggested Citation

  • Fadliya & Ross H. McLeod, 2010. "Fiscal Transfers to Regional Governments in Indonesia," Departmental Working Papers 2010-14, The Australian National University, Arndt-Corden Department of Economics.
  • Handle: RePEc:pas:papers:2010-14
    as

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    File URL: https://crawford.anu.edu.au/acde/publications/publish/papers/wp2010/wp_econ_2010_14.pdf
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    References listed on IDEAS

    as
    1. Fitria Fitrani & Bert Hofman & Kai Kaiser, 2005. "Unity in diversity? The creation of new local governments in a decentralising Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 41(1), pages 57-79.
    2. 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.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Shah, Anwar & Qibthiyyah, Riatu & Dita, Astrid, 2012. "General purpose central-provincial-local transfers (DAU) in Indonesia : from gap filling to ensuring fair access to essential public services for all," Policy Research Working Paper Series 6075, The World Bank.
    2. Olsson, Ola & Valsecchi, Michele, 2015. "Resource Windfalls and Local Government Behaviour: Evidence From a Policy Reform in Indonesia," Working Papers in Economics 635, University of Gothenburg, Department of Economics.
    3. McCarthy, John F. & Gillespie, Piers & Zen, Zahari, 2012. "Swimming Upstream: Local Indonesian Production Networks in “Globalized” Palm Oil Production," World Development, Elsevier, vol. 40(3), pages 555-569.
    4. Patrice Ollivaud, 2017. "Improving the allocation and efficiency of public spending in Indonesia," OECD Economics Department Working Papers 1381, OECD Publishing.

    More about this item

    Keywords

    decentralisation; fiscal transfers; regional autonomy;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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