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The New Indonesian Equalisation Transfer

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  • Blane Lewis

Abstract

This paper examines the intergovernmental general purpose equalisation transfer (DAU) that began operating in 2001. First, a description of the mechanism highlights the significant distributional role played by the 'balancing factor' relative to the 'formula', and the key differences in distribution procedures for districts/municipalities and provinces. Second, the approach and methods are empirically analysed and evaluated. The sums available to the DAU appear more than sufficient to meet regional governments' net expenditure requirements, at least in aggregate, and given some caveats. The allocation mechanism has some design flaws in both its structure and the methods it uses to operationalise expenditure needs and fiscal capacity. Third, an examination of the 'equalising' effects of the transfer scheme shows that conclusions about equalisation depend very much on how one defines and operationalises the concept; policy makers need to be clear about what they want the DAU to accomplish in respect of equalisation.

Suggested Citation

  • Blane Lewis, 2001. "The New Indonesian Equalisation Transfer," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 325-343.
    • Handle: RePEc:taf:bindes:v:37:y:2001:i:3:p:325-343
    DOI: 10.1080/00074910152669163
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    1. Anwar Shah & Zia Qureshi & Amaresh Bagchi & Brian Binder & Heng-fu Zou, 1994. "Intergovernmental fiscal relations in Indonesia: issues and reform options," CEMA Working Papers 474, China Economics and Management Academy, Central University of Finance and Economics.
    2. James Alm & Robert Aten & Roy Bahl, 2001. "Can Indonesia Decentralise Successfully? Plans, Problems And Prospects," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(1), pages 83-102.
    3. Christopher Silver & Iwan Azis & Larry Schroeder, 2001. "Intergovernmental Transfers And Decentralisation In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 345-362.
    4. Anne Booth, 1999. "Survey of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 35(3), pages 3-38.
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    Cited by:

    1. Gertler, Paul J & Gonzalez-Navarro, Marco & Gracner, Tadeja & Rothenberg, Alexander, 2023. "Road Maintenance and Local Economic Development," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt38m633q0, Department of Agricultural & Resource Economics, UC Berkeley.
    2. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2019. "Fiscal Disparities in Indonesia under Decentralization: To What Extent Has General Allocation Grant(DAU) Equalized Fiscal Revenues?," Working Papers EMS_2019_05, Research Institute, International University of Japan.
    3. Bambang Brodjonegoro & Jorge Martinez-Vazquez, 2004. "An Analysis of Indonesia's Transfer System: Recent Performance and Future Prospects," Chapters, in: James Alm & Jorge Martinez-Vazquez & Sri Mulyani Indrawati (ed.), Reforming Intergovernmental Fiscal Relations and the Rebuilding of Indonesia, chapter 8, Edward Elgar Publishing.
    4. Shah, Anwar & Qibthiyyah, Riatu & Dita, Astrid, 2012. "General purpose central-provincial-local transfers (DAU) in Indonesia : from gap filling to ensuring fair access to essential public services for all," Policy Research Working Paper Series 6075, The World Bank.
    5. World Bank, 2003. "Decentralizing Indonesia : A Regional Public Expenditure Review Overview Report," World Bank Publications - Reports 14632, The World Bank Group.
    6. Roger Montgomery & Sudarno Sumarto & Sulton Mawardi & Syaikhu Usman & Nina Toyamah & Vita Febriany & John Strain, 2002. "Deregulation Of Indonesia'S Interregional Agricultural Trade," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(1), pages 93-117.
    7. Gertler, Paul J. & Gonzalez-Navarro, Marco & Gračner, Tadeja & Rothenberg, Alexander D., 2024. "Road maintenance and local economic development: Evidence from Indonesia’s highways," Journal of Urban Economics, Elsevier, vol. 143(C).
    8. Takahiro Akita & Sachiko Miyata, 2018. "Spatial Inequalities in Indonesia, 1996–2010: A Hierarchical Decomposition Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 138(3), pages 829-852, August.
    9. Paul Deuster, 2002. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 38(1), pages 5-37.
    10. Takahiro Akita & Awaludin Aji Riadi & Ali Rizal, 2021. "Fiscal disparities in Indonesia in the decentralization era: Does general allocation fund equalize fiscal revenues?," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(6), pages 1842-1865, December.
    11. Christopher Silver & Iwan Azis & Larry Schroeder, 2001. "Intergovernmental Transfers And Decentralisation In Indonesia," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 345-362.
    12. M A B Siddique & Heru Wibowo & Yanrui Wu, 2014. "Fiscal Decentralisation and Inequality in Indonesia: 1999-2008," Economics Discussion / Working Papers 14-22, The University of Western Australia, Department of Economics.
    13. Mari Pangestu & Miranda Swaray Goeltom, 2001. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(2), pages 141-171.
    14. Lewis, Blane D., 2003. "Local Government Borrowing and Repayment in Indonesia: Does Fiscal Capacity Matter?," World Development, Elsevier, vol. 31(6), pages 1047-1063, June.
    15. Blane D. Lewis, 2005. "Indonesian Local Government Spending, Taxing and Saving: An Explanation of Pre‐ and Post‐decentralization Fiscal Outcomes," Asian Economic Journal, East Asian Economic Association, vol. 19(3), pages 291-317, September.
    16. Coxhead, Ian, 2004. "International Trade and the Natural Resource 'Curse' in Southeast Asia: Does China's Growth Threaten Regional Development," Staff Paper Series 480, University of Wisconsin, Agricultural and Applied Economics.
    17. Reza Siregar, 2001. "Survey Of Recent Developments," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 37(3), pages 277-303.
    18. Hofman, Bert & Kadjatmiko & Kaiser, Kai & Suharnoko Sjahrir, Bambang, 2006. "Evaluating fiscal equalization in Indonesia," Policy Research Working Paper Series 3911, The World Bank.
    19. Earth Innovation Institute, 2015. "Central Kalimantan Land Governance Assessment," World Bank Publications - Reports 28514, The World Bank Group.

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