Inequality and fiscal decentralisation in Indonesia: evidence from the households expenditure data

Heru Wibowo

Research output: ThesisDoctoral Thesis

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Abstract

This study aims to investigate the relationship between fiscal decentralisation and income inequality in Indonesia. Income inequality is estimated based on household survey data, while the degree of fiscal decentralisation is estimated from the district/municipality government's budget statistics. Specifically, there are several objectives in this study. The first objective is to revisit inequality in Indonesia associated with fiscal decentralisation. Three issues are examined with respect to expenditure distribution, namely, inequality, polarisation, and convergence. The second objective is to investigate the implementation of fiscal decentralisation in Indonesia. Most of the previous studies on fiscal decentralisation in Indonesia investigate the balance funds, namely the general allocation fund, revenue sharing, the specific allocation fund, adjustment fund and special autonomy fund for Aceh and Papua. While these areas are covered in this thesis, investigation is also extended to assess the degree of fiscal decentralisation in Indonesia. The third objective is to examine the determinants of inequality in Indonesia in the fiscal decentralisation era. This is conducted by utilising unbalanced panel data of 33 Indonesian provinces over the period of 1999-2008 and the generalised method of moments (GMM). The findings in this thesis show that inequality increased during 1999-2008 when fiscal decentralisation policies were implemented. It is also shown that the widening inequality associated with fiscal decentralisation, however, did not correlate with increasing expenditure polarisation; thus suggesting that society become less polarised. Moreover, it is confirmed that fiscal decentralisation was accompanied by growing middle class in Indonesia. Finally, there is also evidence that households tended to converge rather than diverge in terms of real per capita expenditure.The study has obvious policy implications.
Original languageEnglish
QualificationDoctor of Philosophy
Publication statusUnpublished - 2011

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