Does Government Fragmentation and Fiscal Decentralization Constrain Leviathan? New Evidence From Indonesia Experience

Aan Zulyanto, Lilis Siti Badriah

Abstract


Since the reform era in 1999, Indonesia has made a regional expansion policy and widespread fiscal decentralization policy. During the 1999-2014 period, Indonesia's autonomous regions increased by 70 percent compared to the previous period. Based on the Leviathan hypothesis, the two policies should create a competitive climate and increase the efficiency of government spending. This study aims to analyze the application of the Leviathan hypothesis in the policy of regional expansion and fiscal decentralization in Indonesia. The study uses panel data regression from 32 provinces during the 2002-2020 period. The study results show that the Leviathan hypothesis does not apply to Indonesia's regional expansion and fiscal decentralization policies. This condition happened because the division of regions in Indonesia was caused more by political interests. Most regional revenues still depend on transfers from the central government. The results of this study imply that to obtain tangible benefits from regional expansion, a thorough understanding of regional economic potential is needed, and the need to improve the quality of human resources to optimally utilize regional potentials so that regional independence will be created.

Full Text:

32-41 PDF

References


Alesina, A., & Spolaore, E. (1997). On the number and size of nations. Quarterly Journal of Economics, 112(4), 1026–1056. https://doi.org/10.1162/003355300555411.

Badan Pusat Statistik. (2022). Statistik Keuangan Pemerintah Kabupaten/Kota 2020-2021 Financial Statistic Of Regency/Municipality Goverment Sumatera, Jawa.

Bappenas. (2008). Studi Evaluasi Dampak Pemekaran Daerah. In Jakarta: UNDP.

Bish, R. L. (2001). Local Government Amalgamations. In The Urban Paper (Issue 150, pp. 43–67). https://doi.org/10.1007/978-981-16-4332-3_4

Boyne, G. A. (1992). Local Government Structure and Perfor- Mance : Lessons From America ? 70, 333–358.

Brennan, G., & Buchanan, J. (1980). The power to tax. In The Collected Works of James Buchanan (Vol. 9).

Callanan, M., Murphy, R., & Quinlivan, A. (2014). The risks of intuition: Size, costs and economies of scale in local government. Economic and Social Review, 45(3), 371–403.

Campbell, R. J. (2004). Leviathan and fiscal illusion in local government overlapping jurisdictions. Public Choice, 120(3/4), 301–329. https://doi.org/10.1023/B:PUCH.0000044290.95428.29

Cantarero, D., & Perez, P. (2012). Decentralization and regional government size in Spain. Portuguese Economic Journal, 11(3), 211–237. https://doi.org/10.1007/s10258-012-0085-4

Cassette, A., & Paty, S. (2010). Fiscal decentralization and the size of government: a European country empirical analysis. Public Choice, 143(1–2), 173–189. https://doi.org/10.1007/s11127-009-9496-x

Crowley, G. R., & Sobel, R. S. (2011). Does fiscal decentralization constrain Leviathan? New evidence from local property tax competition. Public Choice, 149, 5–30. https://doi.org/10.1007/s11127-011-9826-7

Dirjen Otda Kemendagri. (2011). Laporan Hasil Evaluasi Daerah Otonom Hasil Pemekaran (EDOHP) 2011.

Dolan, D. E. (1990). Local Government Fragmentation: Does It Drive Up the Cost of Government? Urban Affairs Quarterly, 26(1), 28–45.

Dowding, K., & Mergoupis, T. (2003). Fragmentation, fiscal mobility, and efficiency. Journal of Politics, 65(4), 1190–1207. https://doi.org/10.1111/1468-2508.t01-1-00132

Firman, T. (2009). Decentralization Reform and Local-Government Proliferation in Indonesia: Towards a Fragmentation of Regional Development. Review of Urban & Regional Development Studies, 21(2–3), 143–157. https://doi.org/10.1111/j.1467-940X.2010.00165.x

Golem, S. (2010). Fiscal Decentralisation And The Size Of Government: A Review Of The Empirical Literature. Theory and Practice, 53–69.

Golem, S., & Malešević Perović, L. (2014). An empirical analysis of the relationship between fiscal decentralization and the size of government. Finance a Uver - Czech Journal of Economics and Finance, 64(1), 30–58.

Gómez-Reino, J. L., & Martinez-Vazquez, J. (2013). An international perspective on the determinants of local government fragmentation. The Challenge of Local Government Size: Theoretical Perspectives, International Experience and Policy Reform, 8–55. https://doi.org/10.4337/9781782544302.00006

Goodman, C. B. (2015). Local Government Fragmentation and the Local Public Sector: A Panel Data Analysis. Public Finance Review, 43(1), 82–107. https://doi.org/10.1177/1091142113515048

Grassmueck, G., & Shields, M. (2010). Does government fragmentation enhance or hinder metropolitan economic growth? Papers in Regional Science, 89(3), 641–657. https://doi.org/10.1111/j.1435-5957.2010.00278.x

Grossman, P. (1989). Fiscal decentralization and government size: An extension. Public Choice, 62(1). https://doi.org/10.1007/BF00168014

Harbowo, K. Y. R. & N. (2022). DPR Kaji Pemekaran Daerah Dibuka Lagi. https://www.kompas.id/baca/polhuk/2022/09/14/dpr-kaji-pemekaran-daerah-dibuka-lagi

Hendrick, R. M., Jimenez, B. S., & Lal, K. (2011). Does Local Government Fragmentation Reduce Local Spending? Urban Affairs Review, 47(4), 467–510. https://doi.org/10.1177/1078087411400379

Jaweng, R. E. (2014). Pemekaran dan Daerah Otonom Baru; Bayi Prematur Yang Tumbuh Abnormal. Analisis CSIS, Vol. 43(1), 43–63.

Jin, J., & Zou, H. (2002). How does fiscal decentralization affect aggregate, national, and subnational government size? Journal of Urban Economics, 52(2), 270–293. https://doi.org/10.1016/S0094-1190(02)00004-9

Joulfaian David, M. M. L. (1990). Government Size and Decentralization: Evidence from Disaggregated Data. Southern Economic Journal, 56(10), 94–102.

Marlow, M. L. (1988). Fiscal decentralization and government size. Public Choice, 56(3), 259–269. https://doi.org/10.1007/BF00130275

Murshed, S. M., Tadjoeddin, M. Z., & Chowdhury, A. (2009). Is fiscal decentralization conflict abating? routine violence and district level government in Java, Indonesia. Oxford Development Studies, 37(4), 397–421. https://doi.org/10.1080/13600810903305224

Musgrave, R. . (1959). The Theory of Public Finance. McGraw Hill.

Nelson, A. C., & Foster, K. A. (1999). Metropolitan Governance Structure and Income Growth. 21(3), 309–324.

Nelson M. (1986). An empirical analysis of state and local tax structure in the context of the Leviathan model of government. Public Choice, 49(3), 283–294. https://doi.org/10.1007/BF00127344

Niazi, T. H. (2012). Decentralization. In Diagnosing the Indonesia economy ; toward inclusive and green growth. Asian Development Bank.

Oates, W. E. (1972). Fiscal Federalism. Harcourt Brace Jovanovich.

Oates, W. E. (1985). Searching for Leviathan: An Empirical Study. The American Economic Review, 75(4), 748–757.

Oates, W. E. (1999). An Essay on Fiscal Federalism. Journal of Economic Literature, 37(3), 1120–1149. https://doi.org/10.1257/jel.37.3.1120

Partnership, U. T. &. (2012). Desain Penataan Daerah di Provinsi Kalimantan Barat Tahun 2012 – 2025.

Persson, T., & Tabellini, G. (2004). Constitutions and Economic Policy. Journal of Economic Perspectives, 18(1), 75–98. https://doi.org/10.1257/089533004773563449

Rodden, J. (2003). Reviving Leviathan: Fiscal Federalism and the Growth of Government. International Organization, 57, 695–729. https://doi.org/10.1017/S0020818303574021

Ronald J Oakerson & Park. (1989). Local Government Constitutions: A Different View of Metropolitan Government. American Review of Public Administration, 19(4), 279–294.

Schneider, M. (1986). Fragmentation and the growth of local government. Public Choice, 48(3), 255–263. https://doi.org/10.1007/BF00051622

Shadbegian. (1999). Fiscal Federalism, Collusion, and Government Size: Evidence from the States. Public Finance Review, 27(1), 262–281.

Sow, M., & Razafimahefa, I. F. (2015). Fiscal Decentralization and the Efficiency of Public Service Delivery. 30.

Spencer Banzhaf, H., & Walsh, R. P. (2008). Do people vote with their feet? An empirical test of tiebout’s mechanism. American Economic Review, 98(3), 843–863. https://doi.org/10.1257/aer.98.3.843

Tiebout M Charles. (1956). A PURE THEORY OF LOCAL EXPENDITURES. The Journal of Political Economy, Vol. 64, N(No. 5, (oct, 1956)), 416–424.

Vazquez, J. M. (2011). Mengelola Tekanan Pemekaran. In Desentralisasi Fiskal Di Indonesia Satu Dekade Setelah Ledakan Besar. Direktorat Jenderal Perimbangan Keuangan, Kementerian Keuangan Republik Indonesia.

Vries, M. S. De. (2013). Consolidation in local government An international comparison of arguments and practices. 0–14.

Zulyanto, A., Remi, Sutyastie Sumitro Muljarijadi, B., & Purnagunawan, R. M. (2019). The Effect of Government Fragmentation and Fiscal Decentralization on Economic Growth in Indonesia. DLSU Business & Economics Review, 28(3), 91–103. https://doi.org/10.5281/zenodo.3270548#.XSGotjzatbA.mendeley




DOI: https://doi.org/10.32424/1.erjpe.2024.19.1.3593

Refbacks

  • There are currently no refbacks.


 

Print ISSN : 1907-6827   Online ISSN : 2620-8849

Indexed by :

        

 

Partnership with Professional Association: