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Indonesian Local Government Spending, Taxing and Saving: An Explanation of Pre‐ and Post‐decentralization Fiscal Outcomes*
Author(s) -
Lewis Blane D.
Publication year - 2005
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/j.1467-8381.2005.00214.x
Subject(s) - decentralization , economics , local government , fiscal federalism , devolution (biology) , central government , bureaucracy , public economics , economic policy , market economy , politics , public administration , political science , law , paleontology , bipedalism , biology
As a result of Indonesia's decentralization program, local governments have gained significantly more responsibility for service delivery, considerably larger fiscal resources, and much greater authority over the use of those resources than before. The present paper develops a simple budget model to describe and explain the substantial differences in pre‐ and post‐decentralization local government fiscal behavior related to spending, taxing and saving. During the post‐decentralization period special attention is paid to the fiscal behavior of natural resource rich regions. Among other things, the evidence suggests that: post‐decentralization local government spending is partly responsive to increasing needs and partly the subject of elite capture; local government taxation has become more aggressive under decentralization and appears to be mostly driven by local bureaucratic expectations related to routine overhead budgets; and the increased savings of local governments during the post‐decentralization period is determined to a large degree by delayed central government transfer payments.