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Government Fragmentation and Economic Growth

Traviss Cassidy and Tejaswi Velayudhan

MPRA Paper from University Library of Munich, Germany

Abstract: How does the fragmentation of local governments affect economic activity? We examine this question in the context of a major period of decentralization in Indonesia in which the number of local governments increased by 50 percent within a decade. Exploiting idiosyncratic variation in the timing of district splits, we find that fragmentation reduces district GDP in the short run---despite large increases in central transfers. The downsides of fragmentation due to economies of scale and the inexperience of new government personnel outweigh the potential upsides of increased accountability and competition. The GDP decline is larger in ``child'' districts that acquire a new capital and government. Furthermore, splitting districts spend more on administration and show no improvement in the areas of public good provision, red tape, and corruption.

Keywords: Economic growth; local governments; economies of scale; rent-seeking (search for similar items in EconPapers)
JEL-codes: D73 H77 O43 O47 (search for similar items in EconPapers)
Date: 2022-02-18
New Economics Papers: this item is included in nep-dev, nep-gro, nep-pub, nep-sea and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/112045/1/MPRA_paper_112045.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/112127/10/MPRA_paper_112127.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/117989/17/splitsidn_web_7_17_23.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/118663/1/MPRA_paper_118663.pdf revised version (application/pdf)

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