IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/6075.html
   My bibliography  Save this paper

General purpose central-provincial-local transfers (DAU) in Indonesia : from gap filling to ensuring fair access to essential public services for all

Author

Listed:
  • Shah, Anwar
  • Qibthiyyah, Riatu
  • Dita, Astrid

Abstract

Indonesia has come a long way from centralized governance to decentralized local governance, and today Indonesia ranks among the most decentralized developing countries. The Government of Indonesia is revisiting all aspects of local governance to make appropriate legal and institutional adjustments based on lessons leaarned during the past decade. An important area of this re-examination and possible reform is the central financing of subnational expenditures. The system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance in an objective manner to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This paper takes a closer look at Dana Alokasi Umum -- the most dominant program of unconditional central transfers to finance provincial-local government expenditures in Indonesia. The paper also presents illustrative simulations of alternative programs and compares these with the existing Dana Alokasi Umum allocations. The paper concludes that super complexity leads to lack of transparency, inequity, and uncertainty in allocation. Simpler alternatives are available that have the potential to address autonomy and equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from the complex gap-filling approach to simple output-based transfers to finance operating expenditures. Capital grants would deal with infrastructure deficiencies. And the alternatives would institute fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country.

Suggested Citation

  • 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.
    • Handle: RePEc:wbk:wbrwps:6075
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2012/06/06/000158349_20120606123913/Rendered/PDF/WPS6075.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. 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.
    2. Shankar, Raja & Shah, Anwar, 2003. "Bridging the Economic Divide Within Countries: A Scorecard on the Performance of Regional Policies in Reducing Regional Income Disparities," World Development, Elsevier, vol. 31(8), pages 1421-1441, August.
    3. Blane Lewis, 2001. "The New Indonesian Equalisation Transfer," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 325-343.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sudarno Sumarto & Marc Vothknecht & Laura Wijaya, "undated". "Explaining the Regional Heterogeneity of Poverty: Evidence from Decentralized Indonesia," Working Papers 276, Publications Department.
    2. Nasrudin, Rus'an, 2015. "Does Soft Corruption Make Grease or Sand for Development? Evidence from Road's Special Allocation Fund for Indonesian Districts," MPRA Paper 80578, University Library of Munich, Germany, revised 08 Aug 2017.
    3. Shah, Anwar, 2012. "Autonomy with equity and accountability : toward a more transparent, objective, predictable and simpler (TOPS) system of central financing of provincial-local expenditures in Indonesia," Policy Research Working Paper Series 6004, The World Bank.
    4. Cassidy, Traviss, 2017. "How Forward-Looking Are Local Governments? Evidence from Indonesia," MPRA Paper 97776, University Library of Munich, Germany, revised 01 Jun 2019.
    5. Agustina, Cut Dian & Ahmad, Ehtisham & Nugroho, Dhanie & Siagian, Herbert, 2012. "Political economy of natural resource revenue sharing in Indonesia," LSE Research Online Documents on Economics 57962, London School of Economics and Political Science, LSE Library.
    6. Patrice Ollivaud, 2017. "Improving the allocation and efficiency of public spending in Indonesia," OECD Economics Department Working Papers 1381, OECD Publishing.
    7. Cassidy, Traviss, 2017. "Revenue Persistence and Public Service Delivery," MPRA Paper 114464, University Library of Munich, Germany, revised 06 Sep 2022.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. M A B Siddique & Heru Wibowo & Yanrui Wu, 2014. "Fiscal Decentralisation and Inequality in Indonesia: 1999-2008," Economics Discussion / Working Papers 14-22, The University of Western Australia, Department of Economics.
    2. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2019. "Fiscal Disparities in Indonesia under Decentralization: To What Extent Has General Allocation Grant(DAU) Equalized Fiscal Revenues?," Working Papers EMS_2019_05, Research Institute, International University of Japan.
    3. Takahiro Akita & Sachiko Miyata, 2018. "Spatial Inequalities in Indonesia, 1996–2010: A Hierarchical Decomposition Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(3), pages 829-852, August.
    4. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2021. "Fiscal disparities in Indonesia in the decentralization era: Does general allocation fund equalize fiscal revenues?," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(6), pages 1842-1865, December.
    5. World Bank, 2003. "Decentralizing Indonesia : A Regional Public Expenditure Review Overview Report," World Bank Publications - Reports 14632, The World Bank Group.
    6. Shah, Anwar, 2012. "Autonomy with equity and accountability : toward a more transparent, objective, predictable and simpler (TOPS) system of central financing of provincial-local expenditures in Indonesia," Policy Research Working Paper Series 6004, The World Bank.
    7. Deeptha Wijerathna & Jayatilleke S. Bandara & Christine Smith & Athula Naranpanawa, 2014. "Regional disparities in Sri Lanka: an empirical analysis," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 21(2), pages 77-102, December.
    8. Di Novi, C. & Piacenza, M. & Robone, S. & Turati, G., 2015. "How does fiscal decentralization affect within-regional disparities in well-being? Evidence from health inequalities in Italy," Health, Econometrics and Data Group (HEDG) Working Papers 15/23, HEDG, c/o Department of Economics, University of York.
    9. Philip Bodman & Harry Campbell & Kelly-Ana Heaton & Andrew Hodge, "undated". "Fiscal Decentralisation, Macroeconomic Conditions and Economic Growth in Australia," MRG Discussion Paper Series 2609, School of Economics, University of Queensland, Australia.
    10. Reza Siregar, 2001. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 277-303.
    11. Wrede, Matthias, 2009. "Voting for mobile citizens," European Journal of Political Economy, Elsevier, vol. 25(2), pages 199-207, June.
    12. Faguet, Jean-Paul & Shami, Mahvish, 2008. "Fiscal policy and spatial inequality in Latin America and beyond," LSE Research Online Documents on Economics 27162, London School of Economics and Political Science, LSE Library.
    13. Shah, Anwar, 2012. "Public services and expenditure need equalization : reflections on principles and worldwide comparative practices," Policy Research Working Paper Series 6006, The World Bank.
    14. Jiří Malý & Marek Lichter & Tomáš Krejčí, 2024. "The elusive role of urban form, centrality and scale in the absence of a metropolitan planning agenda: Central European perspective," Growth and Change, Wiley Blackwell, vol. 55(1), March.
    15. Khan, Qaiser & Faguet, Jean-Paul & Ambel, Alemayehu, 2017. "Blending Top-Down Federalism with Bottom-Up Engagement to Reduce Inequality in Ethiopia," World Development, Elsevier, vol. 96(C), pages 326-342.
    16. Naranpanawa, Athula & Arora, Rashmi, 2014. "Does Trade Liberalization Promote Regional Disparities? Evidence from a Multiregional CGE Model of India," World Development, Elsevier, vol. 64(C), pages 339-349.
    17. Margalit, Talia & Mualam, Nir, 2020. "Selective rescaling, inequality and popular growth coalitions: The case of the Israeli national plan for earthquake preparedness," Land Use Policy, Elsevier, vol. 99(C).
    18. Coxhead, Ian, 2004. "International Trade and the Natural Resource 'Curse' in Southeast Asia: Does China's Growth Threaten Regional Development," Staff Paper Series 480, University of Wisconsin, Agricultural and Applied Economics.
    19. José R. Molinas Vega & Ricardo Paes de Barros & Jaime Saavedra Chanduvi & Marcelo Giugale & Louise J. Cord & Carola Pessino & Amer Hasan, 2012. "Do Our Children Have a Chance? A Human Opportunity Report for Latin America and the Caribbean," World Bank Publications - Books, The World Bank Group, number 2374, December.
    20. Riatu M. Qibthiyyah, 2017. "Provinces and Local Government Revenues Structures and Intra-Province Economic Disparity," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 63, pages 81-96, June.

    More about this item

    Keywords

    Subnational Economic Development; Public Sector Economics; Banks&Banking Reform; National Governance; Debt Markets;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:6075. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.