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The Impact Of Fiscal Decentralization And State Allocative Efficiency On Regional Growth In Indonesia

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  • DARIUS TIRTOSUHARTO

    (School of Public Policy, George Mason University, Fairfax, VA 22030, USA)

Abstract

This paper provides a new empirical analysis on the effects of fiscal decentralization on economic growth with the inclusion of a state allocative efficiency factor in the growth model. Using Indonesia as a case study, this study aims to reveal whether the state allocative efficiency will impact growth through better allocation of public goods. Following a two-stage empirical method, the expenditure efficiency of Indonesia's 26 state governments over a 10-year period (1996–2005) is constructed by using Data Envelopment Analysis (DEA) and a panel data regression is utilized in the growth model. The results indicate that although fiscal decentralization provided a greater incentive structure for state governments to become more efficient in allocating fiscal resources, it did not always lead to robust growth due to rising regional disparities particularly in the level of development and resource capacities.

Suggested Citation

  • Darius Tirtosuharto, 2010. "The Impact Of Fiscal Decentralization And State Allocative Efficiency On Regional Growth In Indonesia," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(02), pages 287-307.
    • Handle: RePEc:wsi:jicepx:v:01:y:2010:i:02:n:s1793993310000160
    DOI: 10.1142/S1793993310000160
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    References listed on IDEAS

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    1. Andrés Rodríguez-Pose & Sylvia A R Tijmstra & Adala Bwire, 2009. "Fiscal Decentralisation, Efficiency, and Growth," Environment and Planning A, , vol. 41(9), pages 2041-2062, September.
    2. Bird, Richard & Wallich, Christine, 1993. "Fiscal decentralization and intergovernmental relations in transition economics : toward a systematic framework of analysis," Policy Research Working Paper Series 1122, The World Bank.
    3. Zhang, Tao & Zou, Heng-fu, 1998. "Fiscal decentralization, public spending, and economic growth in China," Journal of Public Economics, Elsevier, vol. 67(2), pages 221-240, February.
    4. Anwar Shah, 2006. "Corruption and Decentralized Public Governance," Chapters, in: Ehtisham Ahmad & Giorgio Brosio (ed.), Handbook of Fiscal Federalism, chapter 19, Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Tirtosuharto, Darius, 2013. "Regional Inequality in Indonesia: Did Convergence Occur Following the 1997 Financial Crisis?," MPRA Paper 70797, University Library of Munich, Germany.
    2. Tran Thi Kim Oanh, 2024. "Impact of fiscal decentralisation on economic growth in Vietnam—A spatial regression approach," Australian Economic Papers, Wiley Blackwell, vol. 63(2), pages 258-282, June.
    3. Darius Tirtosuharto, 2022. "The impact of fiscal efficiency on poverty reduction in Indonesia: institutional factor and geographical differences," Journal of Geographical Systems, Springer, vol. 24(1), pages 67-93, January.
    4. Anisah ALFADA, 2019. "Fiscal Decentralization and Government Expenditure Efficiency in Indonesia: A Malmquist Productivity Index," Expert Journal of Economics, Sprint Investify, vol. 7(1), pages 45-57.
    5. Suratno & J.M.V. Mulyadi, 2020. "Taxes, Revenues and Capital Expenditure as Determinants of Financial Sufficiency of Regional Government," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 283-290.
    6. Darius Tirtosuharto & Handri Adiwilaga, 2013. "Decentralization and Regional Inflation in Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 16(2), pages 137-154, October.
    7. Carlos Mendez, 2020. "Regional efficiency convergence and efficiency clusters," Asia-Pacific Journal of Regional Science, Springer, vol. 4(2), pages 391-411, June.
    8. Tirtosuharto, Darius & Adiwilaga, Handri, 2013. "Decentralization and Regional Inflation in Indonesia," MPRA Paper 70691, University Library of Munich, Germany.

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    More about this item

    Keywords

    Regional competitiveness; fiscal decentralization; economic growth; public expenditure; H30; H72; O40; O43;
    All these keywords.

    JEL classification:

    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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