Legislature Size, Local Government Expenditure and Taxation, and Public Service Access in Indonesia

Abstract

This study examines the impact of legislature size on local public finance and service outcomes in Indonesia. The investigation employs both continuity- and randomization-based regression discontinuity methods to accommodate the endogeneity of council size and to identify its causal effects on local government spending, service delivery, and own-source revenue mobilization. Many studies have examined the influence of increasing legislature size on expenditures, but no consensus has emerged on the direction of impacts. Moreover, interpretation of the efficiency of derived spending effects has remained elusive and reliant on ad hoc theorizing. This is the first study to examine the causal impact of council size on service outcomes, thereby facilitating an empirically based understanding of efficiency effects. The study finds that increasing legislature size negatively affects local government total and capital spending. The investigation also shows that rising legislature size has a negative influence on citizen access to public services. Finally, the examination offers evidence to suggest that an increasing number of legislators have no impact on local own-source revenues. Taken together the results imply a decline in local efficiency: residents pay the same amount in taxes but receive fewer services. The findings in this investigation contradict recent theoretical predictions and empirical results from other research.