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Fiscal Decentralization and Economic Growth : Evidence from Indonesia

Author

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  • Fauziah Swasono

    (Institute for Economic and Social Research (LPEM))

Abstract

As more countries embrace decentralization, economists have been debating its impact on economic growth. They use both single and cross country empirical data and find mixed evidences. Indonesia is one recent example of country’s migration transition from a centralized regime to a decentralized one. It is unique for its scope, scale and time of preparation. The country had only less than two years of preparation to abandon three decades of a centralized system. Decentralization meant that the central government devolved almost all public service functions all at once to 367 sub-provincial (district) governments. This paper presents the evidence of decentralization’s impact on growth in Indonesia. We use two decentralization measures: own source revenue ratio and expenditure ratio, and examine their impact on growth by using panel data covering the 1991 to 2005 period. We find that in Indonesia, hitherto, fiscal decentralization has a negative impact on growth

Suggested Citation

  • Fauziah Swasono, 2007. "Fiscal Decentralization and Economic Growth : Evidence from Indonesia," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 55, pages 109-134, August.
    • Handle: RePEc:lpe:efijnl:200707
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    Cited by:

    1. Djoni Hartono & Tony Irawan, 2008. "Decentralization Policy and Equality: A Theil Analysis of Indonesian Income Inequality," Working Papers in Economics and Development Studies (WoPEDS) 200810, Department of Economics, Padjadjaran University, revised Oct 2008.

    More about this item

    Keywords

    Fiscal Decentralization; Growth;

    JEL classification:

    • H - Public Economics
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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