The affect of fiscal decentralization to the community welfare :: A Case study of Indonesia

WIDIANTO, Dedi,

2008 | Tesis | S2 Magister Ekonomi Pembangunan

Decentralized governance (in political, administrative, or fiscal aspect) considers as a necessary measure to address some of the critical issues to improve delivery of public services. Decentralized governance in Indonesia now in its seventh years of implementation. In this decentralized governance era, fiscal decentralization becomes a very important aspect due to the devolving such authorities from central to sub-national governments. Inter-governmental transfer plays a key role in fiscal decentralization. It aims to reduce the fiscal gaps among sub-national government that will affect to the quality of public services. Whilst disparities among sub-national government exist, this study investigates the impact of fiscal decentralization to the reduction of disparity and welfare improvement using transfer and degree of fiscal decentralization as the main indicators and econometric analysis. Degree of fiscal decentralization will measure the extent to which the devolved authority by fiscally decentralized governance can be well implemented by sub-national governments. This mean that the authority devolved to sub-national governments will affect to the increase of local revenue collected by local government which in turn will help to achieve a better welfare services, in turn additional welfare gains will be the benefits of the community. This research also would like to find out how does the affect of intergovernmental transfer as a government policy work in certain area such as welfare. This study found that during the period of observation, due to the intergovernmental transfer, the degree of fiscal decentralization decline sharply when there was transfer received by sub-national governments intergovernmental. The degrees of fiscal decentralization also tend to decline due to the transfer and it shows the local government dependency to the transfer from central government. Using DAU, DAK and other type of grants to calculate the amount of transfer, did not significantly to reduce disparity meaning that disparity among regions did not worsen due to fiscal decentralization. Because of transfer did not significant to reduce disparities among sub-national level and disparities will affect to the community welfare, other government policy need to fit this problem. Since we found that transfer did not contribute to the reduction of disparity but for certain welfare indicators (life expectancy, literacy rate and mean years of schooling) this government policy experiences a positive significant impact. Thus, two possible policies for the national government to choose, first is by giving local governments more revenue raising powers, because the more revenue raising power devolved to sub-national government will enhance the ability to increase local revenue. The additional impact of this policy is reducing the dependency of local government to the transfer. Second, by increasing revenue transfer from the central to the subnational/ local government, with focused on the certain type of intergovernmental transfer that really aims to improve a better welfare services delivery. However, deepening studies still needed to improve these findings.

Kata Kunci : Mempengaruhi fiskal,Desentralisasi kesejahteraan masyarakat