Evaluating Fiscal Equalization in Indonesia
This paper presents a methodology to evaluate fiscal decentralization focusing on the potential mis-targeting of intergovernmental fiscal equalization transfers. The approach builds on an explicit comparison and the summary measurement of different (horizontal) allocation distributions across states...
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| Format: | Policy Research Working Paper |
| Language: | English |
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World Bank, Washington, DC
2012
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| Online Access: | http://documents.worldbank.org/curated/en/2006/05/6770830/evaluating-fiscal-equalization-indonesia http://hdl.handle.net/10986/8675 |
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okr-10986-86752021-04-23T14:02:40Z Evaluating Fiscal Equalization in Indonesia Hofman, Bert Kadjatmiko Kaiser, Kai Suharnoko Sjahrir, Bambang ADMINISTRATIVE DECENTRALIZATION BENCHMARK BENCHMARKING BENCHMARKS BUDGET CONSTRAINT CENTRAL GOVERNMENTS CHANGES IN REVENUES DECENTRALIZATION DEVOLUTION ECONOMIES OF SCALE EXPENDITURE LEVELS FISCAL DECENTRALIZATION FISCAL TRANSFERS GDP GOVERNMENT BUDGET GOVERNMENT EXPENDITURES GOVERNMENT REGULATION INCENTIVE EFFECTS INCOME INCOME TAXES INTERGOVERNMENTAL RELATIONS INTERGOVERNMENTAL TRANSFER INTERGOVERNMENTAL TRANSFERS LOCAL GOVERNMENT LOCAL GOVERNMENT ASSOCIATIONS LOCAL GOVERNMENT EXPENDITURES LOCAL GOVERNMENTS LOCAL LEVEL LOCAL REVENUES MUNICIPALITIES NATIONAL INCOME NATURAL RESOURCES ORGANIZATIONAL STRUCTURES PERFECT INFORMATION PROPERTY TAXES PROVINCES PUBLIC PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC FUNDS PUBLIC RESOURCES PUBLIC SERVICE PUBLIC SERVICES REGIONAL GOVERNMENTS REGRESSION ANALYSIS REVENUE COLLECTION REVENUE SHARING SUBNATIONAL GOVERNMENTS TAX WAGES WEALTH This paper presents a methodology to evaluate fiscal decentralization focusing on the potential mis-targeting of intergovernmental fiscal equalization transfers. The approach builds on an explicit comparison and the summary measurement of different (horizontal) allocation distributions across states or localities. Whereas formula-based fiscal transfers have the merit of being transparent and promoting revenue predictability in fiscal decentralization, in practice, two challenges emerge: (1) What are the appropriate formula designs given the sub-national data constraints evident in most decentralizing developing countries? and (2) How costly in terms of mis-targeting to the presumed expenditure needs and fiscal capacity are deviations from these types of benchmark formulas (for example, due to historical factors or the need to meet establishment costs such as civil service wages)? The authors illustrate this approach by assessing Indonesia's evolving intergovernmental fiscal system instituted in the 2001 Big Bang decentralization. The discussion comes against Indonesia's recent policy decision to fully fund sub-national civil servant wages as part of the base general allocation grant (DAU) transfers, raising questions about both incentive effects for local governments and potential mis-targeting. The authors identify potential efficiency losses from the DAU's horizontal misallocation from half a dozen alternative scenarios found in the policy dialogue, ranging from 9 to 30 percent-on the order of US$ 3.9 billion-of the overall annual size of this large intergovernmental transfer. The scale of these tradeoffs highlights the importance of intergovernmental transfers in more general debates in public finance for decentralized countries. 2012-06-21T17:57:30Z 2012-06-21T17:57:30Z 2006-05 http://documents.worldbank.org/curated/en/2006/05/6770830/evaluating-fiscal-equalization-indonesia http://hdl.handle.net/10986/8675 English Policy Research Working Paper; No. 3911 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research East Asia and Pacific Indonesia |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ADMINISTRATIVE DECENTRALIZATION BENCHMARK BENCHMARKING BENCHMARKS BUDGET CONSTRAINT CENTRAL GOVERNMENTS CHANGES IN REVENUES DECENTRALIZATION DEVOLUTION ECONOMIES OF SCALE EXPENDITURE LEVELS FISCAL DECENTRALIZATION FISCAL TRANSFERS GDP GOVERNMENT BUDGET GOVERNMENT EXPENDITURES GOVERNMENT REGULATION INCENTIVE EFFECTS INCOME INCOME TAXES INTERGOVERNMENTAL RELATIONS INTERGOVERNMENTAL TRANSFER INTERGOVERNMENTAL TRANSFERS LOCAL GOVERNMENT LOCAL GOVERNMENT ASSOCIATIONS LOCAL GOVERNMENT EXPENDITURES LOCAL GOVERNMENTS LOCAL LEVEL LOCAL REVENUES MUNICIPALITIES NATIONAL INCOME NATURAL RESOURCES ORGANIZATIONAL STRUCTURES PERFECT INFORMATION PROPERTY TAXES PROVINCES PUBLIC PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC FUNDS PUBLIC RESOURCES PUBLIC SERVICE PUBLIC SERVICES REGIONAL GOVERNMENTS REGRESSION ANALYSIS REVENUE COLLECTION REVENUE SHARING SUBNATIONAL GOVERNMENTS TAX WAGES WEALTH |
| spellingShingle |
ADMINISTRATIVE DECENTRALIZATION BENCHMARK BENCHMARKING BENCHMARKS BUDGET CONSTRAINT CENTRAL GOVERNMENTS CHANGES IN REVENUES DECENTRALIZATION DEVOLUTION ECONOMIES OF SCALE EXPENDITURE LEVELS FISCAL DECENTRALIZATION FISCAL TRANSFERS GDP GOVERNMENT BUDGET GOVERNMENT EXPENDITURES GOVERNMENT REGULATION INCENTIVE EFFECTS INCOME INCOME TAXES INTERGOVERNMENTAL RELATIONS INTERGOVERNMENTAL TRANSFER INTERGOVERNMENTAL TRANSFERS LOCAL GOVERNMENT LOCAL GOVERNMENT ASSOCIATIONS LOCAL GOVERNMENT EXPENDITURES LOCAL GOVERNMENTS LOCAL LEVEL LOCAL REVENUES MUNICIPALITIES NATIONAL INCOME NATURAL RESOURCES ORGANIZATIONAL STRUCTURES PERFECT INFORMATION PROPERTY TAXES PROVINCES PUBLIC PUBLIC EXPENDITURE PUBLIC EXPENDITURES PUBLIC FINANCE PUBLIC FUNDS PUBLIC RESOURCES PUBLIC SERVICE PUBLIC SERVICES REGIONAL GOVERNMENTS REGRESSION ANALYSIS REVENUE COLLECTION REVENUE SHARING SUBNATIONAL GOVERNMENTS TAX WAGES WEALTH Hofman, Bert Kadjatmiko Kaiser, Kai Suharnoko Sjahrir, Bambang Evaluating Fiscal Equalization in Indonesia |
| geographic_facet |
East Asia and Pacific Indonesia |
| relation |
Policy Research Working Paper; No. 3911 |
| description |
This paper presents a methodology to evaluate fiscal decentralization focusing on the potential mis-targeting of intergovernmental fiscal equalization transfers. The approach builds on an explicit comparison and the summary measurement of different (horizontal) allocation distributions across states or localities. Whereas formula-based fiscal transfers have the merit of being transparent and promoting revenue predictability in fiscal decentralization, in practice, two challenges emerge: (1) What are the appropriate formula designs given the sub-national data constraints evident in most decentralizing developing countries? and (2) How costly in terms of mis-targeting to the presumed expenditure needs and fiscal capacity are deviations from these types of benchmark formulas (for example, due to historical factors or the need to meet establishment costs such as civil service wages)? The authors illustrate this approach by assessing Indonesia's evolving intergovernmental fiscal system instituted in the 2001 Big Bang decentralization. The discussion comes against Indonesia's recent policy decision to fully fund sub-national civil servant wages as part of the base general allocation grant (DAU) transfers, raising questions about both incentive effects for local governments and potential mis-targeting. The authors identify potential efficiency losses from the DAU's horizontal misallocation from half a dozen alternative scenarios found in the policy dialogue, ranging from 9 to 30 percent-on the order of US$ 3.9 billion-of the overall annual size of this large intergovernmental transfer. The scale of these tradeoffs highlights the importance of intergovernmental transfers in more general debates in public finance for decentralized countries. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Hofman, Bert Kadjatmiko Kaiser, Kai Suharnoko Sjahrir, Bambang |
| author_facet |
Hofman, Bert Kadjatmiko Kaiser, Kai Suharnoko Sjahrir, Bambang |
| author_sort |
Hofman, Bert |
| title |
Evaluating Fiscal Equalization in Indonesia |
| title_short |
Evaluating Fiscal Equalization in Indonesia |
| title_full |
Evaluating Fiscal Equalization in Indonesia |
| title_fullStr |
Evaluating Fiscal Equalization in Indonesia |
| title_full_unstemmed |
Evaluating Fiscal Equalization in Indonesia |
| title_sort |
evaluating fiscal equalization in indonesia |
| publisher |
World Bank, Washington, DC |
| publishDate |
2012 |
| url |
http://documents.worldbank.org/curated/en/2006/05/6770830/evaluating-fiscal-equalization-indonesia http://hdl.handle.net/10986/8675 |
| _version_ |
1764406110259773440 |