The Indonesian case: The Impact of Fiscal Decentralization on the Public Service

Ari Mulianta Ginting

doi:10.22212/jekp.v15i2.4661

The Indonesian case: The Impact of Fiscal Decentralization on the Public Service

Ari Mulianta Ginting

10.22212/jekp.v15i2.4661

| Abstract views: 0 |

Abstract

The expanded autonomy of local governments has influenced local economies and enhanced public services in the health and education sectors. This research has aims to develop a conceptual model illustrating the impact of fiscal decentralization on the public health and education sectors. The study was conducted from 2013 to 2021 using sample data from Indonesia's districts and urban clusters. Empirical research is performed via a dynamic data panel or the Generalized Method of Moments (GMM). The study's results indicate that fiscal decentralization exerts a beneficial albeit statistically insignificant influence on public health services across all cluster data. Moreover, fiscal decentralization exerts a beneficial and substantial influence on public services within the education sector. This report advocates for the government to reallocate funding towards public health and education. The central government have to evaluate the fiscal decentralization that has been running from 2001 until now. The central government have to ensure that the allocation of the fiscal decentralization have been allocated to the public services, specifically for education and health sector

Keywords

fiscal decentralization, public service, panel data analysis

Full Text:

PDF

References

Adam, Antonis; Delis, M. D. P. K. (2012). Fiscal Decentralization and Public Service Sector Efficiency: Evidence from OECD Countries (No. 36889). Retrieved from https://mpra.ub.uni-muenchen.de/36889/1/MPRA_paper_36889.pdf

Ahmad, D., Khan, A. A., Ali, S., Qureshi, G. Y., Anwar, N., & Rauf, A. (2017). Fiscal Decentralization and Delivery of Public Services: Evidence from Education Sector in Pakistan. Studies in Business and Economics, 12(1), 174–184. https://doi.org/10.1515/sbe-2017-0013

Arends, H. (2020). The Dangers of Fiscal Decentralization and Public Service Delivery: a Review of Arguments. Politische Vierteljahresschrift, 61(3), 599–622. https://doi.org/10.1007/s11615-020-00233-7

Arzaghi, M., & Henderson, J. V. (2005). Why countries are fiscally decentralizing. Journal of Public Economics, 89, 1157–1189. https://doi.org/10.1016/j.jpubeco.2003.10.009

Baltagi, B. H. (2008). Econometrics (4th ed.). New York: Springer.

Christia, Adissya Mega and Ispriyarso, Budi. (2019). Desentralisasi Fiskal dan Otonomi Daerah di Indonesia. Law Reform. 15(1), 149-163.

Cordeiro Guerra, S., & Lastra-Anadón, C. X. (2019). The quality-access tradeoff in decentralizing public services: Evidence from education in the OECD and Spain. Journal of Comparative Economics, 47(2), 295–316. https://doi.org/10.1016/j.jce.2021.12.004

Davoodi, H., & Zou, H. (1998). Fiscal Decentralization and Economic Growth : A Cross-Country Study *. Journal of Urban Economics, 43, 244–257.

Diaz-Serrano, L., & Meix-Llop, E. (2019). Decentralization and the quality of public services: Cross-country evidence from educational data. Environment and Planning C: Politics and Space, 37(7), 1296–1316. https://doi.org/10.1177/2399654418824602

DiNovi, C., Piacenza, M., Robone, S., & Turati, G. (2019). Does fiscal decentralization affect regional disparities in health? Quasi-experimental evidence from Italy. Regional Science and Urban Economics, 78. https://doi.org/10.1016/j.regsciurbeco.2019.103465

Dissou, Y., Didic, S., & Yakautsava, T. (2016). Government spending on education, human capital accumulation, and growth. Economic Modelling, 58, 9–21. https://doi.org/10.1016/j.econmod.2016.04.015

Dwicaksono, A., & Fox, A. M. (2021). Does Decentralization Improve Health System Performance and Outcomes in Low-and Middle-Income Countries ? A Systematic Review of Evidence From Quantitative Studies Source : The Milbank Quarterly , Vol . 96 , No . 2 ( June 2021 ), pp . 323-368 Published by. The Milbank Quarterly, 96(2), 323–368.

Ebel, Robert; Yilmaz, S. (2016). On the Measurement and Impact of Fiscal Decentralization (World Bank Policy Research Working Paper No. 2809). World Bank Policy Research Working …No 2809.

Efriandi, T. R. I., Couwenberg, O., & Holzhacker, R. L. (2019). Decentralization and public service provision: A case study of the education sector in Jayawijaya District, Papua, Indonesia. Contemporary Southeast Asia, 41(3), 364–389. https://doi.org/10.1355/cs41-3b

Faguet, J.-P. (2008). Decentralisation's Effects on Public Investment: Evidence and Policy Lessons from Bolivia and Colombia. The Journal of Development Studies, 44(8), 1100–1121. https://doi.org/10.1080/00220380802242370

Filippetti, A., & Cerulli, G. (2021). Are local public services better delivered in more autonomous regions? Evidence from European regions using a dose-response approach. Papers in Regional Science, 97(3), 801–826. https://doi.org/10.1111/pirs.12283

Flynn, N. (2014). Decentralization and governance in health care. Decentralizing Health Services: A Global Perspective. https://doi.org/10.1007/978-1-4614-9071-5_4

Ganaie, A. A., Bhat, S. A., Kamaiah, B., & Khan, N. A. (2021). Fiscal Decentralization and Economic Growth: Evidence from Indian States. South Asian Journal of Macroeconomics and Public Finance, 7(1), 83–108. https://doi.org/10.1177/2277978718760071

Ginting, A. M., Hamzah, M. Z., & Sofilda, E. (2019). The impact of fiscal decentralization on economic growth in Indonesia. Economic Journal of Emerging Markets, 11(2), 152–160. https://doi.org/10.20885/ejem.vol11.iss2.art3

Gonschorek, G. J., & Schulze, G. G. (2021). Continuity or change?: Indonesia's intergovernmental fiscal transfer system under Jokowi. Journal of Southeast Asian Economies, 35(2), 143–164. https://doi.org/10.1355/ae35-2c

Government Regulation. (2021). Mininum Service Standard.

Grindle, M. S. (2007). Going Local: decentralization, democratization, and the promise of good governance. Pricetion University Press.

Gujarati, D. N. (2004). Basic Econometrics. New York (4th ed.). McGraw Hill. https://doi.org/10.1126/science.1186874

Hao, Y., Liu, J., Lu, Z. N., Shi, R., & Wu, H. (2020). Impact of income inequality and fiscal decentralization on public health: Evidence from China. Economic Modelling, (February). https://doi.org/10.1016/j.econmod.2020.02.034

Jia, J., Guo, Q., & Zhang, J. (2014). Fiscal decentralization and local expenditure policy in China. China Economic Review, 28, 107–122. https://doi.org/10.1016/j.chieco.2014.01.002

Kis-katos, K., & Sjahrir, B. S. (2017). The Impact of Fiscal and Political Decentralization on Local Public Investment in Indonesia. Journal of Comparative Economics, 45(2), 344–365. https://doi.org/10.1016/j.jce.2017.03.003

Kuncoro, M. (2014). Otonomi Daerah : Menuju Era Pembangunan Daerah Ed. 3. (3rd ed.). Jakarta: Penerbit Erlangga.

Law No. 23 of 2014 concerning Local Government.

Letelier S, L., & Ormeño C, H. (2021). Education and fiscal decentralization. The case of municipal education in Chile. Environment and Planning C: Politics and Space, 36(8), 1499–1521. https://doi.org/10.1177/2399654418761888

Melo-Becerra, L. A., Hahn-De-Castro, L. W., Ariza, D. S., & Carmona, C. O. (2020). Efficiency of local public education in a decentralized context. International Journal of Educational Development, 76(July 2019), 102194. https://doi.org/10.1016/j.ijedudev.2020.102194

Mitchell, A., & Bossert, T. J. (2010). Decentralisation, Governance and Health-System Performance: "Where You Stand Depends on Where You Sit." Development Policy Review. Retrieved from https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-7679.2010.00504.x%0D

Musgrave, R. A. (1959). The Theory of Public Finance. New York: McGraw Hill.

Narbón-Perpiñá, I., & De Witte, K. (2021). Local governments' efficiency: a systematic literature review—part I. International Transactions in Operational Research, 25(2), 431–468. https://doi.org/10.1111/itor.12364

Oates, W. (1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich.

Oates, W. (1999). An Essay on Fiscal Federalism. Journal of Economic Literature, 37, 1120–1149.

Robinson, M. (2007). Does decentralisation improve equity and efficiency in public service delivery provision? IDS Bulletin, 38(1), 7–17. https://doi.org/10.1111/j.1759-5436.2007.tb00333.x

Sanogo, T. (2019). Does fiscal decentralization enhance citizens' access to public services and reduce poverty? Evidence from Côte d'Ivoire municipalities in a conflict setting. World Development, 113, 204–221. https://doi.org/10.1016/j.worlddev.2021.09.008

Smoke, P., & Lewis, B. D. (1996). Fiscal decentralization in Indonesia: A new approach to an old idea. World Development, 24(8), 1281–1299. https://doi.org/10.1016/0305-750X(96)00042-3

Tiebout. (1956). A Pure Theory of Local Expenditure. Journal of Political Economy, 64(5), 416–424. https://doi.org/10.1360/zd-2013-43-6-1064

Wang, W., Zheng, X., & Zhao, Z. (2012). Fiscal reform and public education spending: A quasi-natural experiment of fiscal decentralization in China. Publius, 42(2), 334–356. https://doi.org/10.1093/publius/pjr039

Wasistiono, Sadu; Polyando, P. (2017). Politik Desentralisasi di Indonesia. Sumedang: Institut Pemerintahan Dalam Negeri (IPDN) Press Jatinangor.

DOI: https://doi.org/10.22212/jekp.v15i2.4661