Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia

Sarmistha Pal and Zaki Wahhaj

No 7076, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Using data from the Indonesian Family Life Surveys, this paper studies the impact of fiscal decentralisation in Indonesia on local public spending across communities with different types of local institutions. Our results provide evidence of heterogeneity in access to public goods across communities in the period prior to fiscal decentralisation; with significantly greater spending on schools and health centres in communities which observe traditional adat laws (which promote an ethic of mutual cooperation), and less spending on roads, public transport, communications etc. in communities which have a democratic electoral system. Fiscal decentralisation led to an increase in the share of spending on physical infrastructure, as well as a convergence in spending across communities with different types of local institutions. We develop a theoretical model to argue that communities which enjoy a higher level of mutual cooperation would benefit less from investment in public goods which facilitate communication and exchange with outsiders – as these improve the outside options of community members and therefore makes it more difficult to sustain intra-community cooperation. Surprisingly, investment in communications and transport infrastructure in these communities were more restrained during the period of centralised fiscal control.

Keywords: democratisation; mutual co-operation; social and physical infrastructure; decentralisation; local public spending; Indonesia (search for similar items in EconPapers)
JEL-codes: D02 H41 O43 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2012-12
New Economics Papers: this item is included in nep-dev, nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Journal of Comparative Economics, 2017, 45 (2), 383-409

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Related works:
Journal Article: Fiscal decentralisation, local institutions and public good provision: evidence from Indonesia (2017)
Working Paper: Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia (2012)
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