Local government spending and service delivery in Indonesia: the perverse effects of substantial fiscal resources

Abstraksi

This study examines district public service access across education, health, and infrastructure sectors in Indonesia. The study finds that service access is becoming more equal across districts in the country, in general. It also demonstrates that district spending positively influences service access–but only up to a point, after which the relationship becomes negative. Simply put, some districts have "too much" money. The quadratic spending effects disappear for districts managed by directly elected executives and those that perform well on their financial audits. For these arguably less corrupt districts, the impact of spending on services is positive across the entire range of expenditure. The consistently beneficial impact of less corrupt district spending on service access is mitigated, however, by rising dependence on intergovernmental transfers. The study highlights the fact that both fiscal and political economy factors strongly influence the level and distribution of services delivered by local governments in Indonesia.