Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/105571
Authors: 
Pal, Sarmistha
Wahhaj, Zaki
Year of Publication: 
2012
Series/Report no.: 
School of Economics Discussion Papers 1216
Abstract: 
Using data from the Indonesian Family Life Surveys, this paper studies the impact of fiscal decentralisation in Indonesia on local public spending across communities with different types of local institutions. Our results provide evidence of heterogeneity in access to public goods across communities in the period prior to fiscal decentralisation; with significantly greater spending on schools and health centres in communities which observe traditional adat laws (which promote an ethic of mutual cooperation), and less spending on roads, public transport, communications etc. in communities which have a democratic electoral system. Fiscal decentralisation led to an increase in the share of spending on physical infrastructure, as well as a convergence in spending across communities with different types of local institutions. We develop a theoretical model to argue that communities which enjoy a higher level of mutual cooperation would benefit less from investment in public goods which facilitate communication and exchange with outsiders - as these improve the outside options of community members and therefore makes it more difficult to sustain intra-community cooperation. Surprisingly, investment in communications and transport infrastructure in these communities were more restrained during the period of centralised fiscal control.
Subjects: 
Decentralisation
Democratisation
Mutual co-operation
Social and physical infrastructure
Local public spending
Indonesia
JEL: 
D02
H41
O43
Document Type: 
Working Paper

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