INTERGOVERNMENTAL TRANSFER AND INCOME REDISTRIBUTION THE IMPACT OF GENERAL PURPOSE AND SPECIAL PURPOSE GRANT ON INCOME INEQUALITY

LUMBANTOBING, MARTIN HASIHOLAN ,

2014 | Tesis | S2 Economics

Since the adoption of decentralization system in Indonesia 2001, the improvement of income inequality, which was one of the objectives of the decentralization policy, has not been achieved. This paper examines the impact of Special purpose Grant and General Purpose Grant as important components in decentralization policy on income equality. Focusing on Indonesian data at provincial level covering a period from 2007 to 2011, this study finds contradictory effects of these grants. I find that the special purpose grant decreases income inequality while the general purpose grant increases income inequality as a result of low local government accountability. Given increasing amount of General Purpose Grant in government budget over time, this finding sheds some lights on the fluctuating income inequality in Indonesia since the adoption of the decentralization policy.

Kata Kunci : Intergovernmental Transfer, Income Inequality, decentralization system in Indonesia 2001, Income Redistribution, low local government accountability.