The Size of Flypaper Effect in Decentralizing Indonesia

Chalil, Tengku Munawar (2018): The Size of Flypaper Effect in Decentralizing Indonesia.

Abstract

This study explores the flypaper effect in Indonesia using a spatial approach. Covering data from 2000-2014, the paper shows that grants stimulate overspending by local governments even though spatial interdependence is carefully treated. The elasticity of lump-sum grants to expenditure is stronger than the elasticity of matching grants. Further, the elasticity of lump-sum grant is greater on routine expenditure, which shows the over-dependency of local governments to lump-sum grant. The over-dependency phenomenon has not changed a lot even after a major change of lump-sum grant formulation being applied by the 2004 decentralization law package.

• Item Type: MPRA Paper
• Language: English
• Keywords: flypaper effect; intergovernmental transfer; local government expenditure
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D78 - Positive Analysis of Policy Formulation and Implementation; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H72 - State and Local Budget and Expenditures; I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I31 - General Welfare, Well-Being

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