Revenue Persistence and Public Service Delivery

Cassidy, Traviss (2017): Revenue Persistence and Public Service Delivery.

Abstract

I exploit unusual policy variation in Indonesia to examine how local responses to intergovernmental grants depend on their persistence. A national reform generated permanent increases in the general grant that were larger for less densely populated districts, while hydrocarbon-rich districts experienced transitory shocks to shared resource revenue. Public service delivery strongly responded to the permanent shock, but not to the transitory shocks, consistent with districts providing lumpy public services as a function of lifetime fiscal resources. The timing and composition of expenditure responses are consistent with this mechanism. The results suggest that the underwhelming effects of natural resource revenue found in previous studies could be due, in part, to forward-looking behavior by local governments.

• Item Type: MPRA Paper
• Language: English
• Keywords: Intergovernmental grants, public goods, flypaper effect, resource curse
• Subjects: 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 > H75 - State and Local Government: Health ; Education ; Welfare ; Public Pensions; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H77 - Intergovernmental Relations ; Federalism ; Secession; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q3 - Nonrenewable Resources and Conservation > Q38 - Government Policy

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