Good governance and the impact of government spending on performance of local government in Indonesia

Abstract

This paper studies the links between public spending, good governance, and its outcomes which measured by performance of local governments. This paper aims to examine the effect of government spending and good governance on performance of local government and whether good governance can strengthen the effect of government spending on performance. This paper based on 1,044 observations of local governments in Indonesia from 2009 until 2012. This paper contributes by providing an understanding of the relationship between public spending, governance, and government performance and provides explanation of the mixed evidence that public spending often does not yield the expected outcomes. This research provides interesting empirical evidence that the expenditure of local government in Indonesia is inefficient in increasing performance. In the contrary, the result shows the negative effect of government spending on performance. The good public governance influenced positively toward performance and reduced the inefficiency of government spending.