Determinants of local public expenditures on education: empirical evidence on Indonesian municipalities between 2005 and 2012

Abstract

We provide an empirical analysis of the factors that drive expenditures on primary and secondary education in Indonesian municipalities. We use a panel dataset covering 427 municipalities between 2005 and 2012. We account for the impact of socio-economic, political and geographical factors on expenditures per pupil and on the share of the overall budget spent on education. Landlocked municipalities and municipalities with a low net enrolment rate to start with are found to spend less on education. In line with studies from other countries, we find educational expenditures to rise in the municipalities' fiscal capacity. The characteristics of the local municipal council are found to influence educational expenditures in coastal municipalities with expenditures increasing in the share of the Golkar Party (Suharto's former party in the authoritarian era) and decreasing in the degree of political fragmentation. Applying spatial econometrics to a subsample of four islands, we find municipalities' educational expenditures to be positively correlated with those in neighbouring municipalities. This suggests that municipalities compete for families by offering attractive schools.