The Impact of Local Government Capacity on Public Service Delivery: Lessons Learned from Decentralized Indonesia

Arif Setiawan, Prijono Tjiptoherijanto, Benedictus Raksaka Mahi and Khoirunurrofik Khoirunurrofik ()
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Arif Setiawan: Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia
Prijono Tjiptoherijanto: Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia
Benedictus Raksaka Mahi: Faculty of Economics and Business, Universitas Indonesia, Depok 16424, Indonesia

Economies, 2022, vol. 10, issue 12, 1-13

Abstract: The issue of poor local government capacity has been considered one of the problems impeding the implementation of decentralization, especially in developing countries. This study addresses this issue in the case of Indonesia, a country that has implemented massive decentralization (administrative, fiscal, and political) over the last two decades. The study aims to provide empirical evidence for the impact of local government capacity on public service delivery in the decentralization regime. Local government capacity is measured based on a policy capacity framework at the organizational level that includes three types of capacities: analytical, operational, and political. The regression of the panel data model, estimated with the Hausman–Taylor method, reveals that government capacity in terms of interactions of three types of capacities has a positive impact on public service delivery. This finding indicates the three types of capacities are complementary and effectively improve local government’s achievement in delivering public services. While operational capacity (including fiscal capacity) has long been reckoned in designing decentralization, this result gives empirical evidence that other critical capacities should be well considered, political and analytical capacities. It underpins the efforts to internalize local government capacity in designing and implementing decentralization programs.

Keywords: decentralization; government capacity; policy capacity; public service delivery (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2022
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