Impact of Fiscal Decentralisation on Economic Growth and Poverty Reduction in Aceh Province, Indonesia

Authors

  • Iqbal Firdaus  BPS-Statistics of Lhokseumawe, Aceh Province, Indonesia
  • Nunung Nuryartono  Department of Economics, IPB University, Bogor, West Java, Indonesia
  • Raul Barreto  School of Economics, The University of Adelaide, Adelaide, South Australia, Australia

DOI:

https://doi.org/10.32628/IJSRSET218130

Keywords:

Fiscal Decentralisation, Intergovernmental Fiscal Transfer, Special Autonomy, Government Expenditure

Abstract

This study analyses the impact of fiscal decentralisation policy on economic development and poverty reduction. It focuses on the practice of intergovernmental fiscal transfer and on special autonomy policy in Aceh province, Indonesia, using data from 23 districts gathered from 2008 to 2018. Undertaking a panel data analysis, it will analyse the impact of intergovernmental fiscal transfer from central to local government on local government expenditure. The impact of local government expenditures and fiscal decentralisation practices on local gross domestic product (GDP) and poverty is also measured. The results show that several intergovernmental fiscal transfer policies in Aceh positively enhance the local expenditure. Further, the local government spending and fiscal decentralisation practices in Aceh improve the local GDP and reduce poverty levels in the region.

References

  1. Abrar, M, Juanda, B, Firdaus, M & Hakim, DB 2018, 'The Effect of Special Autonomy Funds on Economic Growth and Income Inequality in Aceh Province', Journal of Applied Economic Sciences, vol. 13, no. 7.
  2. Akhsyim, A, Dwi, W & Jaka, S 2017, 'Policies to Eliminate Poverty Rate in Indonesia', International journal of economics and financial issues, vol. 7, no. 1, pp. 435-441.
  3. Ali Khan, S 2013, 'Decentralization and Poverty Reduction: A Theoretical Framework for Exploring the Linkages', International review of public administration, vol. 18, no. 2, pp. 145-172.
  4. Bachtiar, R 2018, 'Critically Examining the Arrangements of Fiscal Decentralization in Indonesia', Jurnal Transformative, vol. 4, no. 2, pp. 79-92.
  5. Besley, T & Coate, S 2003, 'Centralized versus decentralized provision of local public goods: a political economy approach', Journal of Public Economics, vol. 87, no. 12, pp. 2611-2637.
  6. Brodjonegoro, B 2004, 'Three years of fiscal decentralization in Indonesia: Its impact on regional economic development and fiscal sustainability', in International Symposium on Fiscal Decentralization in Asia Revisited, Hitotsubashi University, Tokyo.
  7. Buser, W 2011, 'The impact of fiscal decentralization on economics performance in high-income OECD nations: an institutional approach', Public choice, vol. 149, no. 1-2, pp. 31-48.
  8. de Janvry, A & Sadoulet, E 2010, 'Agricultural growth and poverty reduction: Additional evidence', The World Bank Research Observer, vol. 25, no. 1, pp. 1-20.
  9. Debrah, E 2014, 'The Politics of Decentralization in Ghana’s Fourth Republic', African studies review, vol. 57, no. 1, pp. 49-69.
  10. Decentralization and Governance in Indonesia 2016, Development and Governance, 2, 1st ed. 2016. edn, eds RL Holzhacker, R Wittek & J Woltjer, Springer International Publishing, Cham.
  11. Dufhues, T, Theesfeld, I & Buchenrieder, G 2015, 'The Political Economy of Decentralization in Thailand: How Past and Present Decentralization Affects Rural Actors’ Participation', European journal of development research, vol. 27, no. 5, pp. 793-810.
  12. Edmund, JM & Francis, EH 2016, 'Varieties of Disappointment: Why Has Decentralization Not Delivered on Its Promises in Southeast Asia?', Journal of Southeast Asian Economies, vol. 33, no. 2, pp. 125-138.
  13. Fiscal Decentralization and Development: Experiences of Three Developing Countries in Southeast Asia 2012, ed. H Uchimura, Palgrave Macmillan.
  14. Fiscal federalism 2014: making decentralisation work 2013, OECD Publishing, Paris.
  15. Gonschorek, GJ & Schulze, GG 2018, 'Continuity or Change? Indonesia’s Intergovernmental Fiscal Transfer System under Jokowi', Journal of Southeast Asian Economies, vol. 35, no. 2, pp. 143-164.
  16. Hartati, ES 2012, 'Dampak Komposisi Belanja Pemerintah Terhadap Pertumbuhan Ekonomi, kesempatan Kerja dan Tingkat Kemiskinan', Faculty of Economy and Management, IPB University, Bogor, Indonesia.
  17. Hasugian, AM 2006, 'Dampak Desentralisasi Fiskal terhadap Kinerja Keuangan Daerah dan Kemiskinan di Kabupaten dan Kota Provinsi Jawa Barat', Faculty of Economy and Management, IPB University, Bogor, Indonesia.
  18. Hammond, GW & Tosun, MS 2011, 'The Impact of Local Decentralization on Economic Growth: Evidence from U.S. Counties', Journal of regional science, vol. 51, no. 1, pp. 47-64.
  19. Indah, SP 2011, 'Analisis Dampak Desentralisasi Fiskal dan Pengaruhnya Terhadap PDRB, Tenaga Kerja, dan Kemiskinan di Provinsi Jawa Barat', Faculty of Economy and Management, IPB University, Bogor, Indonesia.
  20. Intergovernmental fiscal transfers principles and practices 2006, Public sector governance and accountability series, eds RW Boadway & A Shah, World Bank, Washington, DC.
  21. Kai, O, Yuhki, T & Krislert, S 2016, 'Indonesia's Decentralization Experiment: Motivations, Successes, and Unintended Consequences', Journal of Southeast Asian Economies, vol. 33, no. 2, pp. 139-156.
  22. Kaludjerovic, J, Mirkovi?, M & Jocovi?, M 2017, 'The Impact of Fiscal Decentralisation on Local Economic Development in Montenegro', Lex localis-journal of local self-government, vol. 15, no. 3, pp. 685-703.
  23. Lai, Y & Cheng, T 2011, 'Intergovernmental Allocation of Public Resources, Fiscal Decentralization and Economic Growth', International Journal of Information Engineering and Electronic Business, vol. 3, no. 3, pp. 8-15.
  24. Lewis, B 2013, 'Local government capital spending in Indonesia: Impact of intergovernmental fiscal transfers', Public Budgeting & Finance, vol. 33, no. 1, pp. 76-94.
  25. Mali?ká, L, Šulíková, V & Šoltés, M 2017, 'Relationship between Fiscal Decentralization and Economic Growth in European Union Countries and Slovakia', Ekonomický ?asopis, vol. 65, no. 9, pp. 856-875.
  26. Mankiw, NG 2010, Macroeconomics, 7th ed. edn, Worth Publishers, New York, NY.
  27. Muda, I & Ridha, H 2018, 'Effect of Revenue and General Allocation Fund of Capital Expenditures in the Economic Growth as Moderator Variable. Case of Indonesia', Academic journal of economic studies, vol. 4, no. 1, pp. 29-39.
  28. Mudayen, YMV & Maridjo, H 2018, 'The Impacts of Fiscal Decentralization, Institutional Transformation, and Regional Revenue on Income Disparities between Provinces in Indonesia', Journal of Economics, Business & Accountancy Ventura (Online), vol. 20, no. 3, pp. 247-259.
  29. Pepinsky, T & Wihardja, M 2011, 'Decentralization and Economic Performance in Indonesia', Journal of East Asian Studies, vol. 11, no. 3, pp. 337-371,515-516.
  30. Rodriguez-Pose, A & Ezcurra, R 2010, 'Is fiscal decentralization harmful for economic growth? Evidence from the OECD countries', Journal of economic geography, vol. 11, no. 4, pp. 619-643.
  31. Sartiyah, s, Sri, H, Syaukat, Y & Oktaviani, R 2017, 'The Effect of Government Spending on Education to Human Capital in Aceh Province', Journal of economic development, environment and people, vol. 6, no. 4, pp. 18-28.
  32. Schneider, A 2003, 'Decentralization: Conceptualization and measurement', Studies in comparative international development, vol. 38, no. 3, pp. 32-56.
  33. Sepulveda, CF & Martinez-Vazquez, J 2011, 'The Consequences of Fiscal Decentralization on Poverty and Income Equality', Environment and planning. C, Government & policy, vol. 29, no. 2, pp. 321-343.
  34. Shahid, M & Kalim, R 2020, 'Decentralized Tax Revenue, Institutional Complementarity and Economic Growth: A Time Series Analysis of Pakistan', International journal of economics and financial issues, vol. 10, no. 4, pp. 25-33.
  35. Stiglitz, J. E. (2000). Economics of the public sector. New York, W.W. Norton.
  36. Sudhipongpracha, T & Wongpredee, A 2017, 'Fiscal Decentralization in Comparative Perspective: Analysis of the Intergovernmental Grant Systems in Indonesia and Thailand', Journal of Comparative Policy Analysis: Research and Practice, vol. 19, no. 3, pp. 245-261.
  37. Syaifudin, N, Sutrisno, A & Setiawan, AD 2015, 'The impact of fiscal transfer on energy efficiency in Indonesia', Energy Procedia, vol. 65, pp. 239-247.
  38. The Government of Indonesia. Constitution No. 22 of 1999, No. 25 of 1999, No. 18 of 2001, No. 33 of 2004, No. 11 of 2006 and No. 23 of 2014. Republic of Indonesia State Gazette No. 3839, 3848, 4134, 4438, 4633, 5587, State Secretariat. Jakarta
  39. Vu Thanh Tu, A 2016, 'Vietnam: Decentralization Amidst Fragmentation', Journal of Southeast Asian Economies, vol. 33, no. 2, pp. 188-208.
  40. World Bank 2013, Fiscal Decentralization, viewed 10 February 2020, <http://www1.worldbank.org/publicsector/decentralization/fiscal.htm>.
  41. Zhang, T & Zou, H-f 1998, 'Fiscal decentralization, public spending, and economic growth in China', Journal of Public Economics, vol. 67, no. 2, pp. 221-240

International Journal of Scientific Research in Science, Engineering and Technology

Downloads

Published

2021-02-28

Issue

Volume 8, Issue 1, January-February-2021

Section

Research Articles

License

Copyright (c) IJSRSET

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

[1]
Iqbal Firdaus, Nunung Nuryartono, Raul Barreto "Impact of Fiscal Decentralisation on Economic Growth and Poverty Reduction in Aceh Province, Indonesia" International Journal of Scientific Research in Science, Engineering and Technology (IJSRSET), Print ISSN : 2395-1990, Online ISSN : 2394-4099, Volume 8, Issue 1, pp.176-185, January-February-2021. Available at doi : https://doi.org/10.32628/IJSRSET218130