Fiscal Decentralization Research Articles

Fiscal decentralisation and public service delivery: evidence and lessons from sub-national governments in Kenya

This paper provides empirical evidence on the effects of fiscal decentralisation on public service delivery in devolved systems of government in Kenya. A qualitative study interviewed 126 respondents and held two focus group discussions with key stakeholders from within two of Kenya’s 47 counties: Kiambu and Nairobi City. The paper focuses on key elements of fiscal decentralisation, namely: expenditure responsibilities, revenue autonomy and borrowing powers. Public service delivery was examined using affordability as a key measure of the quality of services. Results show that fiscal decentralisation did not necessarily lead to more affordable public services as there were significant contextual factors such as corruption, legal structures, cultural values, belief systems, pressure to conform and change agents that moderated this relationship. Corruption made public services less affordable in both counties, while Nairobi Metropolitan Services emerged as a change agent that improved the affordability of specific public services within Nairobi City county. The paper outlines a conceptual framework for further research into implementation of fiscal decentralisation in Kenya and elsewhere, especially in Africa, and calls for more qualitative studies, especially longitudinal studies, case studies and ethnographic approaches to enrich knowledge in this field.

ANALISIS RASIO KEUANGAN ANGGARAN PENDAPATAN DAN BELANJA DAERAH (APBD) PROVINSI JATIM UNTUK MENILAI KINERJA KEUANGAN PEMERINTAH PROVINSI JATIM TAHUN ANGGARAN 2018-2022

Analysis of financial statements, namely breaking down the records in the financial statements that are part of the basic information and examining important or related relationships using quantitative and non-quantitative data for the purpose of obtaining financial data that is considered important in decision-making, The purpose of this study is to be able to evaluate the financial performance of the East Java Provincial Government using an analysis of the regional budget reports for 2018–2022. This type of research is descriptive-qualitative with a case study approach. The information processed is a report on the implementation of the East Java Provincial Government's budget for the 2018-2022 fiscal year obtained from an online publication published on the official website https://djpk.kemenkeu.go.id/. This 53.807% is based on the East Java Provincial Government's LRA data processing for the 2018–2022 fiscal year. The analysis used in the analysis of regional economic indicators is financial ratio analysis, which calculates the degree of independence, the degree of fiscal decentralization, the efficiency ratio, the ratio of effectiveness, and the regional financial capability. The analysis used to analyze regional financial capacity is the calculation of the share and growth rate as well as a map of the capacity of the regional economy. Based on the calculations and analysis of regional economic indicators, it can be concluded that the relationship model for the degree of regional autonomy in Manado City is a better criterion. The level of decentralization of financial activities is still ongoing, but the efficiency ratio is very effective. Based on regional financial capabilities, it can be concluded that the economic situation of East Java Province is still not ideal. Based on market share and growth calculations, the position of East Java Province is in the second quadrant, and the profitability of the East Java province's economy is relatively high.

Financial Ratio Analysis of Local Government of Pematang Siantar City

This study aims to determine the financial performance of the Regional Government of Pematang Siantar City when viewed from eight ratios such as regional financial independence ratio, fiscal decentralization ratio, regional financial dependence ratio, PAD effectiveness ratio, PAD efficiency ratio, growth ratio, expenditure compatibility ratio and solvency ratio. This type of research is quantitative with descriptive methods. The data used is the 2022 Pematang Siantar City Regional Government Budget Realization report. The data analysis used is a quantitative descriptive method using financial ratios. Looking at the results of the analysis of the eight ratios, there are three of them categorized as unfavorable, namely the level of regional financial independence which is still very low, the Fiscal Decentralization Ratio is still not good and the level of Regional Financial Dependence is still high. While the other ratio is said to be good. This research still has many shortcomings, therefore the author provides suggestions to be a reference for future researchers in the same location or program as the Pematang Siantar City Regional Government program to Measure the Financial Performance of the Regional Government of Pematang Siantar City, North Sumatra Province

Dampak Partisipasi Anggaran, Tanggung Jawab Akuntansi dan Desentralisasi Fiskal terhadap Kinerja Manajerial Melalui Komitmen Organisasi pada Pelayanan Pemerintah Kota Palu

To improve the company's effectiveness, it is essential to conduct an evaluation of managerial performance, particularly in the implementation of managerial functions. This study aims to analyze the impact of budgetary participation, accountability accounting, and fiscal decentralization on managerial performance through organizational commitment in the Palu City Government Department. The hypotheses were tested using SEM PLS with a sample of 100 respondents. The findings of the research indicate that accountability accounting and budgetary participationxdoxnotxhave a significant influence on managerial performance. However, fiscal decentralization and organizational commitment have a significant impact on managerial performance. Moreover, accountability accounting, budgetary participation, and fiscal decentralization have an effect on organizational commitment. Additionally, organizationalxcommitmentxmediates the relationship between accountability accounting, budgetary participation, fiscal decentralization, and managerial performance.

Research on the Relationship Between Fiscal Decentralization and Environmental Governance

The issue of fiscal decentralization and environmental governance is of great research significance, which can guide local governments to implement environmental governance policies in reality. Based on this, this study uses literature review and other methods to discuss the research in the fields of fiscal decentralization, local government governance behavior and environmental governance. The main findings are as follows: firstly, in terms of theoretical analysis, the existing literature studies from the aspects of environmental decentralization, local government competition and market segmentation, and there is still a lack of theoretical discussion on the characteristics of economies at different stages of development; In terms of empirical research, the existing literature explores the specific mechanism and spatial effect, and the inconsistency in variable measurement has a great impact on the results. Based on this study, the exploration of fiscal decentralization and environmental governance can give more consideration to the strategic game between different levels of government in the future, pay attention to the consideration of different stages of development, and obtain more practical research result.

The Dangers of Fiscal Decentralisation in Healthcare: A Response to the Recent Commentaries.

The Dangers of Fiscal Decentralisation in Healthcare: A Response to the Recent Commentaries.

How does financial decentralization synergies carbon reduction and pollution control in China?

This study looks at how carbon reduction, pollution management, and monetary decentralization in China all work together for a win-win situation. Since China is the most significant contributor to global warming, the country must implement policies to cut carbon emissions and curb pollution. One possible answer is financial decentralization, delegating federal financial responsibilities, and decisions to state and regional governments. The study used the weighted matrix analysis technique, LM matrix analysis technique, and ARDL short-run and long-run analysis estimates. However, the degree to which it will help China reduce carbon emissions and regulate pollution is unclear. This study takes a multifaceted approach to the investigation of this problem. Determining the efficacy of financial decentralization in addressing environmental concerns and drawing policy implications for China's environmental governance framework requires investigating the drivers of this trend and the mechanisms through which it operates. We perform a comprehensive empirical analysis to examine the results of using Chinese data from 1999 to 2019. This study's results provide new information to the literature by showcasing the power of fiscal decentralization in propelling environmentally sound policies in China. Central policy takeaways from the report include decentralizing financial authority to local governments, encouraging cooperation across multiple tiers of government, and setting up effective systems for monitoring and enforcing compliance. These policy suggestions can help China decrease carbon emissions and regulate pollution more efficiently, paving the way to better environmental results and a more sustainable future.

Fiscal Decentralization and County Natural Poverty: A Multidimensional Study Based on a BP Neural Network

To achieve the goal of long-term stable poverty reduction, it is necessary to implement not only economic poverty reduction but also natural poverty reduction and formulate a green and sustainable economic growth pattern, and finance is an effective means to affect economic poverty reduction and natural poverty reduction. This paper innovatively calculates the natural poverty index of 1712 county administrative units in China based on BP neural network and combines relevant county data to investigate the impact of county fiscal decentralization on natural poverty and its transmission mechanism from 2000 to 2020 using a two-way fixed-effect model, which provides a new interpretation perspective for green economy patterns and sustainable development. The main research results are as follows: First, the increase in county-level financial autonomy in China significantly increases the level of regional natural poverty, which is still valid after a series of robustness tests using the instrumental variable method, replacing the response variables and processing with a one-stage lag. Secondly, heterogeneity analysis shows that, on the one hand, the positive impact of county-level fiscal decentralization on the natural poverty index is different in regions with different natural poverty formation mechanisms. On the other hand, the reform of “provincial direct management of counties” has significantly improved the natural poverty situation in counties, indicating that an extensive fiscal and taxation system in the early stages of economic development aggravates regional natural poverty and that optimized fiscal decentralization is conducive to the alleviation of natural poverty. Finally, the mechanism analysis found that the local income impact and expenditure preference accompanied by the fiscal decentralization of counties strengthened the race to the bottom of taxation, guided industrialization, hindered technological progress and led to the deterioration of regional natural poverty. This research claims that encouraging local governments to deepen and improve the fiscal decentralization system, implement the concept of green finance, improve the ecological protection compensation mechanism and market incentive system and implement differentiated mitigation plans for different natural poverty counties are the crucial factors to achieving natural poverty alleviation at the county level and improving regional ecological sustainability in the future.

The paradox of special autonomy: Why does wealth make Papua poor?

Papua’s Special Autonomy has been running for two decades with a budget disbursement of approximately 101.2 trillion rupiah. In line with that, this study aims to analyze the problems that occurred in Papua during the implementation of special autonomy. This research is qualitative research using data from books, journals, and media reports. This research adopts Bardhan and Mookherjee’s theory about the condition of fiscal decentralization which generates welfare. The research results substantially consist of two main things. First, from the point of view of local democracy, previously the special autonomy policy in Papua had not fully involved local (customary) figures in managing the special autonomy fund. Second, special autonomy in Papua has made budget items increase, both from central to regional transfer funds or other balancing funds. However, this fiscal authority is not accompanied by good capacity building for the organizers of the special autonomy for Papua. Therefore, it can be concluded that the implementation of special autonomy for Papua over the last two decades has not been able to function local democracy and produce reliable fiscal authorities so that the road to prosperity is still long.

ANALYSIS OF CONVERGENT SIGMA AND CONVERGENT BETA REVENUE AND EXPENDITURE OF REGENCY/CITY GOVERNMENT IN THE SPECIAL REGION OF YOGYAKARTA

The era of fiscal decentralization requires every region to be more optimal in managing their Regional Revenue and Expenditure Budget (APBD). However, due to the differences in the characteristics of each region, fiscal decentralization encourages the existence of regional budget gaps. This analysis explored the convergence of district/city government revenues and expenditures in the Special Region of Yogyakarta in 2011-2019 based on the sigma and beta convergence models. This study uses a quantitative approach that describes data in numerals or percentages and econometric analysis in the form of panel data regression (data pool). Panel data combines data, cross-section, five regencies/cities in DIY, and data for time series 2011-2019. The data needed in this study is the Realization of Regional Revenue and Expenditure data, as well as data on the control variables, namely the population, economic growth, and inflation sourced from the Central Statistics Agency and the Directorate General of Fiscal Balance, Ministry of Finance of the Republic of Indonesia. The calculation of sigma convergence uses the coefficient of variants, while the beta convergence calculation uses panel data regression analysis with a fixed-effect model approach. The results showed that Regency/City Revenues and Expenditures in DIY had not experienced sigma convergence because the average coefficient of variants of each revenue and expenditure was 3.51% and 3.29%; however, there was a tendency to experience convergence because the coefficient of variants has decreased from year to year. Conditional beta convergence, which includes control variables, shows a tendency for acceptance convergence with a convergence speed of 0.478%, and the length of time required to cover half the gap (half-life) is 16.83 years. Explanatory variables such as population and economic growth have accelerated revenue convergence. Meanwhile, the conditional beta also shows a tendency for spending convergence which takes 19.04 years with a convergence speed of 0.420%, where only the population variable is proven to accelerate the convergence of spending.
 Keywords: Convergence; Regional Revenue; Regional Expenditures.

The impact of fiscal decentralization on economic growth: A comparative analysis of selected African and OECD countries

Fiscal decentralization, widely believed to be one essential tool to boost economic growth, is typically presented as something that works for developed countries. However, this needs to be investigated, which is what this paper aims to do. This paper investigates the relationship between fiscal decentralization and economic growth, specifically focusing on its applicability in both developed and developing countries. Using cross-sectional data from 23 African and 23 OECD countries, we employ two-stage estimation methods, including two-stage least squares (2SLS), Generalized Method of Moments (GMM), and Limited Information Maximum Likelihood (LIML), to address concerns related to endogeneity. The inclusion of instruments representing country size, ethnoreligious diversity, and administrative structure enhances the analysis. The dependent variable is based on average values for the five-year period between 2015 and 2019, while the explanatory variables are derived from data in 2017, representing the midpoint of the 2013–2021 period. The results highlight the effectiveness of the 2SLS method in estimating the relationship between fiscal decentralization, control variables, instrument variables, and per capita GDP. Empirical findings indicate significant positive impacts of both expenditure decentralization and revenue decentralization on per capita GDP, holding true for both developed and developing countries, with a slightly stronger effect observed in the latter. These results underscore the potential benefits of fiscal decentralization across diverse economies and offer valuable insights for policymakers.The study uses cross-sectional data from 23 African and 23 OECD countries and applies two-stage estimation methods to effectively address the endogeneity issue in the modeling. A variety of such methods in two-stage least squares (2SLS), Generalized Method of Moments (GMM), and Limited Information Maximum Likelihood (LIML) are applied and compared against the ordinary least squares (OLS) method. Variables that represent the size, the ethnoreligious diversity and the type of administrative structure of the countries are employed as instruments. The 2SLS method proved to excellently estimate the relationship between the fiscal decentralization terms as well as other control and instrument variables and the per capita GDP. The findings from the empirical analysis showed that both expenditure decentralization and revenue decentralization have significant positive impacts on per capita GDP of a country. This relationship holds not only for developed countries but also for developing ones, even to a slightly better degree in the latter.

Impact of Fiscal Decentralization on Fiscal Stance in EU: Real Deal or Econometric Illusion?

This paper aims to examine how cyclically-adjusted primary balance (CAPB) in EU countries responded to the expenditure and tax decentralization. We contribute to the literature by three important conclusions. First, estimation results indicate that CAPB positively responded to expenditure decentralization, and negatively responded to tax decentralization. Second, fiscal decentralization seems to be driven by the determinants exogenous to primary balance. Third, variables deemed as the “good” instruments in the existing literature fail to explain within variations of the fiscal decentralization indicators. We hypothesized that negative impact of tax decentralization on the primary balance is transmitted through the government revenues, but further research is needed to resolve this puzzle.

Stimulus or Enforcement? How Intergovernmental Transfers Crowd-in Local Taxes in Indonesia

This study quantifies intergovernmental transfers’ contemporaneous and lagged effects on local tax revenues of districts/municipalities in Indonesia. This study found that transfer as aggregate and unconditional transfers/ Dana Alokasi Umum have crowding-in effects on local tax revenues. Meanwhile, revenue sharing/ Dana Bagi Hasil and conditional transfers/ Dana Alokasi Khusus do not significantly affect the tax revenues of districts/municipalities. In addition, system-Generalized Method of Moments estimation results show that the contemporaneous effects of transfers are more prominent in magnitude than their lagged effects. It indicates that local tax enforcement due to transfers provides a larger portion than the local spending stimulus in determining local revenue increases. Our findings refute the negative stigma that emerged after implementing fiscal decentralization, particularly related to the disincentive effect of transfers on local government efforts to generate their revenues. Therefore, equitably endowing local governments with intergovernmental transfers will improve their accountability and build public trust.

Effect of Fund Transfer, Revenue on Development Index as Moderation Variables

One of the instruments to measure the level of success of a country in carrying out development is the human development index calculation approach. In essence, development is a change towards better conditions so that as a result of development activities it will have implications for the emergence of a budget and ultimately money is needed to realize development activities. During the twenty-four years of implementing fiscal decentralization in Indonesia, the number of transfers to the regions has increased significantly. However, efforts to increase regional revenues are often neglected, so that the goal of fiscal decentralization towards self-sufficient regional government funding has not been achieved to date. This study examines quantitatively how the influence of money arising from development activities, namely Central Government Transfer Funds and Regional Original Revenues, can generate benefits or whether the realization of the budget spent by local governments, namely Capital Expenditures, can generate a certain value or benefit for the community, so that in this study can be described through the human development index instrument. The sampling technique used in this study was purposive sampling. The data used in this study is secondary data obtained from the Central Bureau of Statistics and the Directorate General of State Financial Balance. The research method used is panel data regression with the Fixed Effect Model (FEM), where the data collected is cross-sectional data, namely 414 districts/cities in Indonesia for the period 2012 to 2020 which are time series data. The results obtained show that: (1) DTPP has a positive and significant effect on HDI; (2) PAD has a positive and significant effect on HDI; (3) Through capital expenditure mediation, DTPP has a negative and significant effect on HDI; and (4) Through the mediation of capital expenditure, PAD has a positive and significant effect on HDI..

The Role of Fiscal Decentralization in Limiting CO2 Emissions in South Africa

The Role of Fiscal Decentralization in Limiting CO2 Emissions in South Africa

Environmental decentralization and green development: the mediating role of industrial upgrading.

Green development is a comprehensive concept incorporating environmental protection, playing a vital role in industrial upgrading and economic transformation. Under the current national status of political centralization and fiscal decentralization, decentralized environmental governance exerts a noticeable impact on green development (GTFP). The direct, mediating mechanism, and the spillover effects of environmental decentralization (ED) on GTFP are examined according to 30 Chinese areas dataset from 2005 to 2019. We reveal that a significant negative impact of ED on GTFP. The mediating effect of industrial upgrading is found during impact of ED on GTFP process. Furthermore, with the rising ED of surrounding areas, the GTFP of its region will be weakened. Meanwhile, an overall negative spillover effect of ED on the GTFP of neighboring areas is confirmed. ED in eastern and central China negatively impact GTFP, and such impact in the western area is insignificant. The spillover effects are also heterogeneous.

Fiscal Decentralization and Human Development in Selected Developing Countries in Asia: Role of Institutionali

The paper aims to investigate the impact of fiscal decentralization on human development and moderating role of political institutions in selected Asian countries for the time period 1990-2019, applying panel data Fixed and Random Effects models. The empirical findings show that fiscal decentralization at both the provincial and local levels significantly affects human development. The optimal level of fiscal decentralization is computed at 1.143 and 0.229, respectively, suggesting that fiscal decentralization above this level may revert the results for human development. The non-linear specification of the model also portrays a rising human development in the wake of fiscal decentralization but at a decreasing rate. Moreover, the role of institutionalization is proved effective in the case of the countries where provincial-level decentralization is controlled in the model. The results imply that a lack of proper coordination and mismanagement due to many governance tiers can subside human development. However, fiscal decentralization is an essential factor for Asian countries to increase the efficiency of the public sector if supported with a controlled decentralization at the sub-national level.JEL Classification: H50, H70, O15

Declining financial performance of local governments in Indonesia: An empirical study during Covid-19

This research focuses on assessing the financial performance of Regency/City Governments in Central Java Province after refocusing their budget during the COVID-19 pandemic in 2021. Budget Refocusing is a government policy to cope with the impact of the COVID-19 pandemic. This policy certainly has an impact on the financial performance of local government. The calculation process to measure the financial performance of local government using formulas adopted from the research and development section of the Ministry of Home Affairs as well as the Faculty of Social and Political Sciences, Gadjah Mada University, and applied in previous research to calculate financial ratios such as the local government fiscal decentralization, local government financial dependency, regional original income (PAD) effectiveness, and capital expenditure ratios. The results showed that 71.43% of local governments have financial capability in the less category, 62.86% in the moderate category, and 45.71% have a PAD effectiveness ratio in the very effective category. Moreover, the average capital expenditure ratio for the governments was found to be 11.47%.

The effect of fiscal decentralization on economic growth in sub-national governments of Ethiopia: A two-step system general methods of moments (GMM) approach

The study examines the impact of fiscal decentralization on Ethiopia’s Subnational (Regional) economic growth. The study followed a quantitative research procedure employing data from 2008 to 2021. The units of analysis in the study are Ethiopia’s sub-national governments (SNGs). The study used the two-step System General Method of Moments (GMM) of dynamic panel estimation because it resolves concerns such as endogeneity and heteroscedasticity. The study’s findings revealed that expenditure, revenue, and composite decentralization have a statistically significant negative effect on regional economic growth. Moreover, among the control variables, inflation and government size have a statistically significant detrimental effect on regional economic growth. However, human capital has no significant effect. Ethiopia’s fiscal decentralization contradicts the goals and theoretical underpinnings of fiscal federalism. This may be because fiscal decentralization and economic activities function within an ethnically based federalism framework. The primary implication is that the federal government needs to reevaluate the transfer of fiscal authority to SNGs. Transforming tax policy into a robust institutional mechanism for economic growth is vital. The revenue and spending sides of intergovernmental relations also need to be closely related. As opposed to prior studies, which utilized one or two fiscal decentralization indicators, this study used multiple indicators, making the study more thorough and closing the knowledge gap.

Fiscal Decentralization and Corruption: The Facts of Regional Autonomy Policies in Indonesia

Decentralization has posed new problems in Indonesian local governments, including disparities between regions, poor public services, fiscal indiscipline, and corruption cases. Before the implementation of regional autonomy, corruption cases were reported only in a few regions. A year after decentralization started, in 2002, more corruption cases were reported in more regions nationwide. The irony is that such decentralization, initiated to reduce corruption in the government, ended up with more corruption in the regions. This study investigates the relationship between fiscal decentralization—as proxied by capital expenditure and fiscal independence index—and the corruption index. This study also analyzes the macro factors and regional characteristics: inflation, civil servants’ salaries, education levels, and the differences in the corruption index at the regional level. The method used in this study is regression analysis by using panel data from longitudinal studies involving 15 cities in Indonesia in 2008, 2010, 2015, and 2017. The finding shows that the relationship of fiscal decentralization—expenditure, inflation rates, civil servants’ salaries, and local corruption—are not statistically significant to the corruption index. By contrast, the relationship between the fiscal independence index and educational level are statistically significant. The implementation of fiscal decentralization on expenditure increases corruption risks due to ineffective budget management, individual corrupt tendencies, and weak supervision system. Meanwhile, fair allocation of local income can increase public trust and prosperity and lower corruption risks.