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Fiscal decentralisation, local institutions and public good provision: evidence from Indonesia

Sarmistha Pal () and Zaki Wahhaj

Journal of Comparative Economics, 2017, vol. 45, issue 2, 383-409

Abstract: Using data from the Indonesian Family Life Surveys, we study the impact of fiscal decentralisation in Indonesia on local public spending across communities characterised by different types of informal and formal institutions. Our results provide new evidence that fiscal decentralisation led to a significant increase in community spending on social infrastructure (health and education) in communities which observed strict adherence to customary laws and had a tradition of local democracy. We argue that investment in transport and communication facilitates exchange with outsiders and improves the outside options of community members, thus making it more difficult to sustain intra-community cooperation. Consequently, communities which enjoy a high level of cooperation in collective activities benefit less from investing in transport and communication and are more inclined to invest in social infrastructure.

Keywords: Decentralisation; Democratisation; Collective activities; Mutual co-operation; Traditional laws; Social and physical infrastructure; Local public spending; Indonesia (search for similar items in EconPapers)
JEL-codes: D02 H41 O43 (search for similar items in EconPapers)
Date: 2017
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Related works:
Working Paper: Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia (2012) Downloads
Working Paper: Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia (2012) Downloads
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