Evaluating Fiscal Equalization In Indonesia

World Development, 1996

The system for financing and delivering local public services in Indonesia, as in many developing countries, is highly centralized. Growing awareness of the weaknesses of the present system has recently generated much interest in decentralization and numerous government policies and programs toward that end. In spite of these efforts, the role and capacity of local governments remain weak. In this paper, we outline the most critical obstacles to decentralization and examine a strategy to reduce their significance. Instead of centering our analysis on the definition of a normatively desirable decentralization outcome, we focus on the development of a process through which genuinely feasible outcomes could be defined and implemented, in this case an interministerial and intergovernmental process for evaluating local governments.

Economy of Region

The study examined the effect of fiscal decentralisation on both vertical and horizontal inequality in 32 provinces of Indonesia in the period from 2005 to 2014 using several fixed effects (FE) estimations. Moreover, we assessed the mediating role of institutional quality in explaining the nexus between fiscal decentralisation and inequality. To complement the econometrics results, we conducted several semi-structured interviews (SSIs) based on expert judgement and focus group discussions (FGDs) among relevant stakeholders. This analysis focussed on the intergovernmental transfer policy designed and implemented at the sub-national government level. Such qualitative analysis started in the last week of March 2019 and ended in the first week of July 2019. The quantitative findings showed that there was a robust, positive, and significant relationship between fiscal decentralisation and vertical inequality when democracy was taken into account. Meanwhile, fiscal decentralisation was negatively correlated with horizontal inequality when the estimation included social capital. In addition, fiscal decentralisation appears to have a marginal impact on horizontal inequality when both democracy and the crime rate are considered in the full sample analysis. However, when we excluded provinces located in Java Island, the impact of fiscal decentralisation on horizontal inequality became clear. Regarding the qualitative aspect, the fieldwork results were consistent with the quantitative findings.

Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi dan Pembangunan

In Indonesia, the implementation of fiscal decentralization has entered the 9th year, however, so far many problems and obstacles which is faced during the implementation to stimulate economic growth and reduce poverty. This study aims to analyze: trend of government expenditure in decentralization era and regional autonomy during 2001-2009 and fiscal decentralization degree in Indonesia. This objective is achieved through descriptive analysis using secondary data for 2001-2009. The result shows central government expenditure tends to decreased and transfer expenditure increased significantly every year in absolutely, but annual growth rate fluctuated considerably. This indicates the allocation portion of the transfers was unstable. The largest component of transfers is fund balance and tends to increase every year significantly, fiscal decentralization degree at districts/city and province increased in 2007-2008. It is recommended to regional government to allocate public interest ...

Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia

Using 214 out of 440 data set in 2004, it is found that most of local governments in Indonesia showed poor performance in generating local own revenues. The methods used here are the Quadrant and Index Methods. Some reasons can explain this poor situation. Beside the weak local taxation power, the dominant role of central government in revenue-generating has led to the poor performance. Furthermore, the Indonesian decentralization is in process toward the more ideal form. Nonetheless, it is widely-known that the "bigbang" decentralization approach has changed Indonesia as one of the most centralized countries into one of the more decentralized ones without any significant interruption.

Economics & Sociology

Acceleration of poverty reduction in Indonesia is largely determined by the role of regional governments in implementing fiscal decentralization. Three indicators of fiscal decentralization were used to measure their effects on poverty reduction, i.e., regional government expenditures, regional government revenues, and intergovernmental transfers. This study investigated the panel data regression models for 33 provinces in Indonesia during 2010-2016. The results show that regional government revenues and intergovernmental transfers had a statistically significant effect on reducing poverty while regional government expenditures did not. This study confirms that in the context of fiscal decentralization in Indonesia, the increase of regional government revenues both from own source revenues and intergovernmental transfers appear to be more effective in encouraging poverty reduction than the increase of the total regional government expenditures. Therefore, it is very important for policymakers at the regional level to encourage the increase of regional revenues in order to create enough fiscal space to fund poverty alleviation programs on the one hand. On the other hand, it is necessary to increase the proportion of regional government expenditures to priority programs for poverty alleviation more than regional government operational expenditures.

Fiscal decentralization is one aspect of public financial management reform which is intended to improve governance. Meanwhile, governance is widely believed as one of key factors to improve development; thus fiscal decentralization is deemed to be able to improve development indirectly. This paper tries to assess the effect of fiscal decentralization, which Indonesia has embarked upon since 2001, on Indonesia's development. The development is measured through economic, education, and health indicators. Basic descriptive statistics as well as correlation analysis on fiscal decentralization by using panel data is used to see the correlation between fiscal decentralization and the above-mentioned development indicators. The result shows fiscal decentralization is positively correlated with development in Indonesia. However, it is also found that there is no guarantee that merely higher transfer fund from central government will result higher development; what matter more seems to be the pro-development budget allocation and the spending quality. Other key success factors of fiscal decentralization for development in Indonesia could be possible future research area.

MPRA Paper, 2009

Since its independence, Indonesia has experience a rapid and uneven economic growth. The financial crisis in 1998 has led Indonesia to decentralisation with a new political and government budget order in 2001. Researches found that the local government's main expenditure are on routine spending, such as wage and asset maintenance, not on the development spending. Using macroeconomic data from 1993 to 2005, this paper aims to overview the inequality in Indonesia regions before and after the decentralisation. The paper deploy a set of data on inter government fiscal transfer, expenditure rate, and the level of revenue as a proxy variables to understand the effect to inequality. In this paper we will overview the level of disparities by using various methods and also the shifts of regional inequality over time. It is suggested that inequality level is still severe and convergence rate has decrease throughout the decentralisation era. Impacts from inequality can be detected although weak and fluctuated over time.

World Development, 1998

In World Development Smoke and Lewis (1996) describe a local government capability rating effort in Indonesia, and conclude that this approach to decentralization has great potential. Their analysis is bound to a limited set of central level actors, and thus reflects only part of the decentralization debate in Indonesia. Consequently the authors miss the roots of this purportedly "new" approach and overestimate its actual or possible effects. Smoke and Lewis have also not taken into account the importance of a vastly different approach to decentralization, the regional autonomy pilot program, which was inaugurated by the Indonesian Government in April 1995. Providing the broader context to the rating effort, we try to reveal its conceptual and practical limitations and point on the ambiguous role of the rating effort in the decentralization arena in Indonesia.

This paper provides an empirical analysis on the impact of government decentralization to local government fiscal capacities by investigating local government revenue models. It estimates econometric models with panel data involving 477 cities and districts for the period 2009-2012. The result shows that general purpose fund, and government spending strongly affect the revenues increase. In contrast, institution factor as a main decentralization implementation does not affect tax revenue. This means that decentralization has not been able to strengthen local institution capacity. It indicates the existence dichotomy between decentralization policy and local government revenues.