The impact of Public Spending on Education in Indonesia

Aditya Agus Satria, Prof. Ito Takahiro

2013 | Tesis | S2 Magister Ek.Pembangunan

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Since the government of Indonesia passed Law No. 20/2003, regarding the national education system, educational budget allocation has been increasing dramatically. As reported in the annual budget statement 2011, on average, districts and municipalities spent 36% of their annual budget to finance the education sector. Decentralization in Indonesia has made districts and municipalities as key administrative units in the development process. This study aims to investigate whether the public spending in a district and municipality affects the educational development outcomes, using a set of panel data covering 398 districts and municipalities in Indonesia. Moreover, this study examines the role of governance in the efficacy of public spending. Where governance is measured based on audit reports provided by the Supreme Audit Board/Badan Pemeriksa Keuangan (BPK). Using fixed effect model and 2SLS to cope with time-invariant bias and reverse causality bias, respectively, the empirical results suggest that public spending in districts and municipalities has a small impact on net enrolment rates in primary education. In addition, the results show that the impact of public spending is smaller in regions with a poor quality of governance. These results confirm the general findings of prior research in the area of public spending and educational outcomes, e.g. Filmer (2007), Baldacci, Clements, Gupta, & Cui (2008), and Rajkumar & Swaroop (2008).

Kata Kunci : Public spending, educational outcomes, educational development, budget allocation