THE FLYPAPER EFFECT PHENOMENON OF INTERGOVERNMENTAL TRANSFERS DURING THE COVID-19: EVIDENCE FROM INDONESIA

Abstract

This study aims to confirm the flypaper effect phenomenon and the impact of the Covid-19 pandemic on local own-source revenue (LOR), general allocation fund (GAF), and local government financing on local government expenditure in Indonesia. The research used a quantitative method, while the sample was data on regional government budget (RGB) realization in 335 local governments in 2019 – 2020. The data were analyzed using Moderating Regression Analysis. The study found that there was a flypaper effect phenomenon that encouraged the local governments to use GAF, instead of LOR for their local expenditure. The GAF and local government expenditures were higher during the Covid-19 period. To overcome the flypaper effect phenomenon, the central government is advised to improve the GAF policy by setting priorities for its use. Local governments must encourage micro, small, and medium enterprises to help support LOR. This study proves there exists the phenomenon of the flypaper effect in developing countries that implement the presidential system (republic) and provide substantial empirical evidence on government spending policies during crisis and non-crisis (Covid-19).