Local Budget Resilience in Times of COVID-19 Crisis: Evidence from Indonesia

Nauli Aisyiyah Desdiani, Syahda Sabrina, Meila Husna, Amalia Cesarina, Fachry Abdul Razak Afifi and Alin Halimatussadiah
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Nauli Aisyiyah Desdiani: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia
Syahda Sabrina: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia
Meila Husna: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia
Fachry Abdul Razak Afifi: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia
Alin Halimatussadiah: Institute for Economic and Social Research, Faculty of Economics and Business, Universitas Indonesia, Campus UI Salemba, Jakarta 10430, Indonesia

Economies, 2022, vol. 10, issue 5, 1-18

Abstract: The COVID-19 pandemic has put immense pressure on the fiscal situation. Central revenues have decelerated while expenditures had to be increased to facilitate economic recovery. Local governments faced even harder challenges as intergovernmental transfers were reduced and room for mobilizing alternative finances was limited. This paper employs qualitative and secondary data analysis on local budget and fiscal capacities at the subnational level in Indonesia to find insights into the implications and responses of the provincial government in a decentralized economy during the pandemic. Provinces with a high dependence on intergovernmental transfer are struggling to adopt a countercyclical mitigative fiscal policy. However, provinces with high local own-source revenue have suffered the most during the crisis as low economic activity reduced tax revenues and indirectly lead to lower fiscal space. As fiscal policy is critical to containing the pandemic and facilitating recovery, this paper proposes several strategies toward a more sustainable fiscal policy for rebuilding local government capacity in the medium-to-long term in the aftermath of the crisis.

Keywords: fiscal policy; local budget; COVID-19 pandemic; resilience budget; economic recovery (search for similar items in EconPapers)
JEL-codes: E F I J O Q (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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