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Subnational favoritism in development grant allocations: Empirical evidence from decentralized Indonesia

Gerrit J. Gonschorek

World Development, 2021, vol. 139, issue C

Abstract: Are public grant allocations biased toward the birth districts of governors, and, if so, what explains this favoritism? The allocation of budget authority to local government officials is a common trend around the developing world, but it is often criticized for transferring favoritism from the center to lower government levels. Using a unique panel data set of 410 Indonesian districts for the period 2005–2013, I exploit the discretionary nature of a government grant and data from a large amount of asynchronous local direct elections to investigate whether the birthplace of the provincial governor determines fund allocation to the district level. I show that birth districts of incumbent governors receive significantly larger shares of discretionary grants compared with the other districts within a province. I find that local favoritism is driven by governors with political history in the district office of their birth district and is limited by local electoral accountability. Classical pork-barrel politics, however, as reelection motives or formal political party ties to the district administration, do not explain local favoritism. These results illustrate the importance of non-discretionary institutional grant design and local democratization reforms in Indonesia’s political system. The country is a young democracy characterized by low ideological cleavages, little party loyalty, and the prevalence of money politics in its decentralized fiscal system. These features characterize a number of developing countries, yet contrast sharply to the established democracies for which subnational favoritism has been analyzed.

Keywords: Fiscal Decentralization; Subnational Favoritism; Discretionary Grants; Local Elections; Southeast-Asia; Indonesia (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.worlddev.2020.105299

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