Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia

57 Pages Posted: 14 Oct 2014 Last revised: 7 Apr 2016

See all articles by Sarmistha Pal

Sarmistha Pal

University of Surrey; IZA Institute of Labor Economics

Zaki Wahhaj

University of Kent - Department of Economics; University of Namur; University of Kent - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 6, 2016

Abstract

Using data from the Indonesian Family Life Surveys, we study the impact of fiscal decentralisation in Indonesia on local public spending across communities characterised by different types of informal and formal institutions. Our results provide new evidence that fiscal decentralisation led to a significant increase in community spending on social infrastructure (health and education) in communities which observed strict adherence to customary laws and had a tradition of local democracy. We argue that investment in transport and communication facilitates exchange with outsiders and improves the outside options of community members, thus making it more difficult to sustain intra-community cooperation. Consequently, communities which enjoy a high level of cooperation in collective activities benefit less from investing in transport and communication and are more inclined to invest in social infrastructure.

Suggested Citation

Pal, Sarmistha and Wahhaj, Zaki, Fiscal Decentralisation, Local Institutions and Public Goods Provision: Evidence from Indonesia (April 6, 2016). Available at SSRN: https://ssrn.com/abstract=2508889 or http://dx.doi.org/10.2139/ssrn.2508889

Sarmistha Pal (Contact Author)

University of Surrey ( email )

Stag Hill
Guildford, England GU2 7XH
United Kingdom
01483 683995 (Phone)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Zaki Wahhaj

University of Kent - Department of Economics ( email )

Keynes College
Kent, CT2 7NP
United Kingdom

University of Namur ( email )

8 Rempart de la Vierge
Namur, 5000
Belgium

University of Kent - School of Economics ( email )

CT2 7NP
United Kingdom

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