Is a Specific Grant Really ”Specific”?: Case of Indonesian Provinces, 2003 – 2010

Kodrat Wibowo (), Astia Dendi () and Zulhanif ()
Additional contact information
Astia Dendi: The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)
Zulhanif: Department of Statistics, Padjadjaran University

No 201109, Working Papers in Economics and Development Studies (WoPEDS) from Department of Economics, Padjadjaran University

Abstract: Theoretically, according to Shah (1994), the specific purpose transfer fund suited for correcting inefficiencies in financing of public facilities with externalities (spillovers) to communities outside the recepient regions. Various types of matching grant: open-ended and closed-ended are in fact not intended to address the fiscal imbalance or insufficiency of fiscal capacity among regions. The central government of Indonesia prefers the closed-ended specific purpose transfer (specific grant) fund, so called Dana Alokasi Khusus (DAK) in its inter-governmental balancing fund system considering that problem of moral hazard occured in open-ended approach. By definition, the DAK is a fund sourced from the central budget revenues allocated to specific regions in order to help funding, also specific activities that are of regional affairs and in accordance with national priorities. In fact, the number of the DAK-funded priority areas has been increasing from only 5 fields at the beginning of the year 2003 and became 14 fields in 2010. Moreover, the number of DAK recipient regions always reaches almost 90% of total regions in Indonesia in the same period. There appears a question of how the essential of ‘specificness’ of DAK can be evidenced from these facts? This study will use the 2003-2009 DAK fund allocation of 33 provinces in Indonesia and ultilize statistics analysis to analyze the ‘specificness’ of DAK. Based on the evaluation during the period 2003 – 2010 the essence of specificness is drowned out by more sightings of the essence of 'equalization' fiscal capacity both horizontally and vertically which are more functions of the block grant (DAU) and Revenue Sharing Transfer (DBH). The results of our study also shows that the pattern and magnitude of DAK allocation is applied over the years, do not contribute significantly to the goals (outcomes and impact) of national development.

Keywords: Public Finance; Transfer Fund; Fiscal Decentralization (search for similar items in EconPapers)
JEL-codes: H0 H7 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2011-09, Revised 2011-09
New Economics Papers: this item is included in nep-geo, nep-sea and nep-ure
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