The flypaper effect phenomenon of intergovernmental transfers during the Covid-19:Evidence from Indonesia

Lela Nurlaela Wati (), Heri Ispriyahadi () and Dhika Habibi Zakaria ()
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Lela Nurlaela Wati: Sekolah Tinggi Ilmu Ekonomi Muhammadiyah Jakarta, Indonesia
Heri Ispriyahadi: Sekolah Tinggi Ilmu Ekonomi Muhammadiyah Jakarta, Indonesia
Dhika Habibi Zakaria: Sekolah Tinggi Ilmu Ekonomi Muhammadiyah Jakarta, Indonesia

Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 2022, vol. 40, issue 2, 353-373

Abstract: This study aims to confirm the flypaper effect phenomenon and the impact of the Covid-19 pandemic on local own-source revenue (LOR), general allocation fund (GAF), and local government financing on local government expenditure in Indonesia. The research used a quantitative method, while the sample was data on regional government budget (RGB) realization in 335 local governments in 2019 – 2020. The data were analyzed using Moderating Regression Analysis. The study found that there was a flypaper effect phenomenon that encouraged the local governments to use GAF, instead of LOR for their local expenditure. The GAF and local government expenditures were higher during the Covid-19 period. To overcome the flypaper effect phenomenon, the central government is advised to improve the GAF policy by setting priorities for its use. Local governments must encourage micro, small, and medium enterprises to help support LOR. This study roves there exists the phenomenon of the flypaper effect in developing countries that implement the presidential system (republic) and provide substantial empirical evidence on government spending policies during crisis and non-crisis (Covid-19).

Keywords: flypaper effect; general allocation fund; local government expenditure; local government financing; local own-source revenue (search for similar items in EconPapers)
JEL-codes: H30 H53 H70 H74 (search for similar items in EconPapers)
Date: 2022
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