Fiscal decentralisation,local institutions and public good provision: evidence from Indonesia |
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| Institution: | 1. University of Surrey, Guildford GU2 7XH, United Kingdom;2. University of Kent, United Kingdom;1. ICREA Research Professor, Universitat Pompeu Fabra, Barcelona IPEG, Barcelona GSE, Spain; New Economic School, Russia;2. Professor of Economics and Political Science, and Gorter Family Professor of Islamic Studies, Duke University, USA;3. Research Scholar, Stanford Center for International Development, Stanford Institute for Economic Policy Research, Stanford University, USA;1. University of Massachusetts Amherst, 80 Campus Center Way, Amherst, MA 01003, United States;2. Colorado College, 14 E. Cache La Poudre St., Colorado Springs, CO 80903, United States;1. University of Warwick, UK;2. University of Namur, Belgium;3. Montpellier Business School, France;1. Department of Public Finance, School of Economics, Wang Yanan Institute for Studies in Economics, MOE Key Laboratory of Econometrics, and Fujian Key Laboratory of Statistical Science, Xiamen University, Xiamen 361005, Fujian, China;2. Department of Economics, Faculty of Arts & Social Sciences, National University of Singapore, AS2 Level 6, 1 Arts Link, Singapore 117570, Singapore |
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| 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. |
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