The Impact of Government Budget shifts to Regional Disparities in Indonesia: Before and After Decentralisation

Aritenang, Adiwan F. (2009): The Impact of Government Budget shifts to Regional Disparities in Indonesia: Before and After Decentralisation.

Abstract

Since its independence, Indonesia has experience a rapid and uneven economic growth. The financial crisis in 1998 has led Indonesia to decentralisation with a new political and government budget order in 2001. Researches found that the local government’s main expenditure are on routine spending, such as wage and asset maintenance, not on the development spending. Using macroeconomic data from 1993 to 2005, this paper aims to overview the inequality in Indonesia regions before and after the decentralisation. The paper deploy a set of data on inter government fiscal transfer, expenditure rate, and the level of revenue as a proxy variables to understand the effect to inequality. In this paper we will overview the level of disparities by using various methods and also the shifts of regional inequality over time. It is suggested that inequality level is still severe and convergence rate has decrease throughout the decentralisation era. Impacts from inequality can be detected although weak and fluctuated over time.

• Item Type: MPRA Paper
• Language: English
• Keywords: Indonesia; Decentralisation; Government Budget; Disparities; Local Revenue
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R5 - Regional Government Analysis > R51 - Finance in Urban and Rural Economies; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics

References

Akita, T., and Lukman, R.A., 1995, Interregional Inequalities in Indonesia: A Sectoral Decomposition Analysis for 1975-92, Bulletin of Indonesian Economic Studies 31 (2), pp. 61-81

Aritenang, A.F., 2008, A Study on Indonesia Regions Disparity: Post Decentralisation, NAERUS Workshop: Edinburgh, United Kingdom

Barro, R.J. & Sala-i-Martin, X., 1991. Convergence across States and Regions. Brookings Papers on Economic Activity, 22(1991-1), 107-182.

Barro, R.J., and Sala-I-Martin, X., 1995, Economic Growth, McGraw-Hill, New York.

Booth, Anne (2005) 'The Evolving Role of the Central Government in Economic Planning and Policy Making in Indonesia.' Bulletin of Indonesian Economic Studies, 41 (2). pp. 197- 219.

Brodjonegoro, B., 2003, The Indonesian Decentralisation after law revision: Toward a better future?, Department of Economics, University of Indonesia.

Chandra, A.C., 2008, Indonesia and the ASEAN Free Trade Agreement: Nationalist and Regional Integration Strategy, Plymouth: Lexington Books.

Indonesia Ministry of Finance, www.depkeu.go.id, access March 1st 2009.

Islam, I., 1999, Regional Decentralisation in Indonesia, Towards a social Accord, Working paper 99/01. Jakarta: United Nations Support Facility for Indonesia Recovery.

Indonesia Statistic Bureau, 2005, Statistical Year Book of Indonesia, Jakarta

Kuncoro, M., 2007, Ekonomika Industri Indonesia: Menuju Negara Industri Baru 2030? , Jakarta: ANDI Publication

Lin, J.Y, and Liu, Z., 2000, Fiscal decentralisation and economic growth in China, Economic Development and Cultural Change 49(1): 1-22.

Logan, J., 2008, Belted by NAFTA? A Look at Trade’s Effect on the US Manufacturing Belt, Regional Studies, 42:5, 676-687

Nurcholis, H., 2005, Teori dan Praktek Pemerintahan dan Otonomi Daerah, Jakarta: PT. Grasindo

Resosudarmo B.P., and Vidyattama, Regional Income Disparity in Indonesia: A Panel Data Analysis, ASEAN Economic Bulletin 23 No 1 (2006), 31-44

Rivas, M. G., 2007, The Effecct of trade openness on regional inequality in Mexico, The Annals of Regional Science 41: 545-561

Rondinelli, D., 1990, Decentralisation, Teritorial Power and the State: A Critical Response, Development and Change 21, 491-500.

Seymour, R., and Turner, S., 2002, Otonomi Daerah: Indonesia’s Decentralisation Experiment, New Zealand Journal of Asian Studies 4 (2), pp. 33-51

Tambunan, T., 2006 Perekonomian Indonesia sejak Orde Lama hingga Pacsa Krisis, Jakarta: Pustaka Quantum

Zhang, T, and Zou, H., 1998, Fiscal decentralisation, public spending, and economic growth in China, Journal of Public Economics 67: 221-240.