Fiscal decentralization in Indonesia :: Estimating provincial production function in the pre and in the fiscal decentralization

INDRAWATI, Veronica Kartika, Makoto Kakinaka

2008 | Tesis | S2 Magister Ekonomika Pembangunan

Fiscal decentralization is expected to improve the welfare of the people by improving and increasing the services provided to people. Provincial governments get more share of revenue due to fiscal decentralization. As a result, provincial governments can spend more on capital expenditures that are intended to improve the welfare of the people. The main objective of this study is to analyze the changes in provincial production structure between the pre-fiscal decentralization period and the fiscal decentralization period by using panel data on GDP, labor force, and capital stock from 1997 to 2004. We conducted regression analysis to estimate provincial production function for these two time periods using GDP per labor as the dependent variable. The major finding is that, provincial GDP was determined mainly by labor during the prefiscal decentralization period rather than by capital stock. The study also found that, all independent variables are significant in explaining the GDP per labor in the fiscal decentralization period. The policy implications are, better coordination is necessary between the central government, provincial governments, and local governments to develop public capital stock conducive to the development of the private sector and provincial governments need to strengthen their administrative capacities

Kata Kunci : Desentralisasi pajak,Fungsi produksi,Prakiraan provinsi, Fiscal decentralization, Capital Expenditure, Productivity