Local political fragmentation: Fiscal and service delivery effects in Indonesia

Blane Lewis

Departmental Working Papers from The Australian National University, Arndt-Corden Department of Economics

Abstract: This study examines the direct and indirect impact of local political fragmentation on fiscal and service outcomes in Indonesia, focusing particular attention on the interaction between local legislatures and directly elected executives. The investigation uses newly accessed data on council size—a common measure of political fragmentation—over two recent electoral periods. The analysis employs a regression discontinuity design, which assists in overcoming problems associated with the endogeneity of council size. The study determines that council size directly suppresses local government spending, as other recent work has also found. The effects of council size are also indirectly expenditure-constraining. When councils are small the impact of direct executive elections on spending is positive; as council size grows positive election effects decline; and when councils become particularly large the influence of direct elections on expenditure becomes negative. Recent research on this topic contends that such constraints on local spending are constructive—they reflect useful limitations on the budget maximizing tendencies of local administrations. This analysis argues otherwise. It posits that the reduced spending caused by fragmentation adversely affects service delivery and therefore constitutes a harmful effect. The study provides evidence to show that increasing council size does indeed negatively influence service outcomes. (revised Feb2017)

Keywords: local government; council size; local elections; local government spending; public service delivery; regression discontinuity; Indonesia (search for similar items in EconPapers)
JEL-codes: H72 H75 H76 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2016
New Economics Papers: this item is included in nep-cdm, nep-dev, nep-pol, nep-sea and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pas:papers:2016-16

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