r 2009 Public Financial Publications, Inc.
The Impact of Decentralization on Subnational Government Fiscal Slack in Indonesia BLANE D. LEWIS and ANDRE´ OOSTERMAN
Since Indonesia began implementing its decentralization program in 2001, subnational unspent balances have grown rapidly and have reached levels that many officials find unreasonably high. But the extent to which subnational government reserves are excessive, in general, is not obvious. A not implausible decrease in the price of oil would reduce transfers to subnationals significantly and, if sustained, could possibly eliminate reserves in a relatively short time. Central government should not take any immediate action to reduce subnational slack resources directly but should instead focus on removing the underlying causes of such.
INTRODUCTION A significant literature exists on subnational government slack revenues in more developed countries, especially the United States.1 Most of this research focuses on the creation, use, and impact of budget stabilization funds and similar fiscal mechanisms. A major preoccupation of this work has been to examine the extent to which subnationals maintain sufficient reserves to stabilize expenditures during economic downturns. Issues related to the slack resources of subnational governments in developing countries have not yet been addressed in the academic literature. This is not surprising given the typical lack of accessible data on key variables. This paper focuses on the slack resources of
Blane D. Lewis, Associate Professor, Lee Kuan Yew School of Public Policy, National University of Singapore, 469C Bukit Timah Road, Singapore 259772, Singapore. Andre´ Oosterman, Consultant, World Bank, Jakarta Stock Exchange Building, Tower 2, 12th floor, Jl. Jenderal Sudirman, Kav. 52–53, Jakarta 12180, Indonesia. 1. See Justin Marlowe, ‘‘Fiscal Slack and Counter-Cyclical Expenditure Stabilization: A First Look at the Local Level,’’ Public Budgeting & Finance 25, no. 3 (2005): 48–72 and Rebecca Hendrick, ‘‘The Role of Slack in Local Government Finances,’’ Public Budgeting & Finance, 26, no. 1 2006: 14–46, for brief reviews and comprehensive citations.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 27
subnational governments in Indonesia and would appear to be the first of its kind for a developing country.2 Indonesian subnational governments comprise provinces and districts. Starting in 2001, these second- and third-tier governments began operating in a much more decentralized environment than had been the case before that date. Fiscal decentralization in Indonesia is characterized by a significant devolution of spending responsibility to subnational governments, especially at the district level. However, control over major sources of revenue remains highly centralized. By the end of 2007, subnationals accounted for about 38 percent of total public sector expenditure but only about 8 percent of total public revenues. As a result, transfers from the central government have been called upon to finance the bulk of expenditure decentralization to the subnational level. This is not an uncommon situation in developing countries that are decentralizing their public sectors.3 Indonesian subnationals have accumulated substantial unspent balances since the government launched its decentralization program. 4 At their recent peak, subnational reserves reached just over Rp 110 trillion or about 3 percent of GDP.5 The size of subnational unspent balances has caused significant concern among some central government officials, especially as the center has struggled to reduce its own fiscal deficit.6 Policy discussions have focused on possible methods for encouraging subnationals to spend more of the resources available to them and, less feasibly given the current legal framework, on schemes for reducing transfers to subnationals if they don’t increase spending. Three sets of questions about subnational reserves in Indonesia immediately present themselves. As indicated above, it is well known that it is sensible for subnationals to keep some funds in reserve in order to stabilize expenditures when economic activity slows and public revenues decline. This suggests a first question of significance: do Indonesian subnationals save too much from this point of view? A second set of interesting questions concerns the determinants of subnational savings. That is, do subnational governments save purposively or has the recent buildup of unspent revenues 2. Another reason for the relative dearth of research on subnational fiscal slack in developing countries may be that many subnationals, due to extremely limited revenues, have simply not saved much; that is, slack is nonexistent in many places. As transfers to and own-source revenues of subnationals grow, as they are in many developing countries, slack resources may become of greater concern. 3. Roy Bahl and Sally Wallace, ‘‘Public Financing in Developing and Transition Countries,’’ Public Budgeting & Finance, Silver Anniversary Edition (2005): 83–98, and Paul Smoke, ‘‘Local Revenues under Fiscal Decentralization in Developing Countries: Linking Policy Reform, Governance and Capacity,’’ in Fiscal Decentralization and Land Policies, eds. Gregory Ingram and Yu-Hung Hong (Cambridge, MA: Lincoln Institute of Land Policy Press, 2008). 4. We use the terms slack revenues, reserves, and unspent balances interchangeably in this paper. 5. Some government officials now refer to the increase in subnational reserves as the ‘‘100 trillion rupiah problem.’’ 6. The cumulative central government budget deficit during 2001–2007 is estimated to be just 4Rp 213 trillion.
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been largely inadvertent? If the latter is the case, what then explains the unintended increase in reserves? A third important question is: What should be done about subnational government savings? This is the policy question on which many central government officials are fixated. The paper proceeds as follows. First, we use available aggregate central bank data on deposits to describe the growth, size, and geographic distribution of subnational reserves across provinces from 2001 through 2007. Second, using deposit and national budget data we simulate the impact of a decrease in the price of oil on subnational fiscal slack. This analysis is carried out in order to shed some light on the degree to which subnational reserves are ‘‘excessive.’’ Third, using the same data combined with information on the main intergovernmental transfers, among others, we specify and estimate a simple econometric model to investigate some of the main potential determinants of subnational government surpluses, during the period 2001–2006. Fourth, we examine a significant number of audited subnational government budgets for 2004–2006 with a view to further specifying the causes of surpluses. In addition, in this section of the paper we highlight the results of some limited field work recently undertaken on relevant issues as the analysis and discussion proceed. Finally, we conclude the paper with a summary of the main points and offer some conclusions of relevance for fiscal decentralization policymaking in Indonesia.
GROWTH, SIZE, AND DISTRIBUTION OF SUBNATIONAL RESERVES This section of the paper uses subnational government bank deposits to indicate reserve funds. Subnational governments are not (yet) known to invest in central government certificates of deposit (SBI), treasuries, or other similar financial instruments to store their funds.7 So most if not all slack funds are on deposit in commercial banks. In addition, subnationals have not borrowed much since decentralization to finance the development of infrastructure.8 Instead, they mostly use own-source revenues and transfers for public capital expenditure. As such, funds on deposit do not include borrowed amounts. Finally, subnational governments are not allowed to maintain deposits in banks located outside the country. All things considered, the use of national deposits as a proxy for aggregate subnational reserves seems reasonable under the present circumstances. The data used in this analysis come from the Indonesian Central BankFBank Indonesia (BI). BI has information on all subnational government (demand, savings, and 7. The banks in which subnationals hold their reserves do, however, invest significantly in such instruments. 8. Christine R. Martell and George M. Guess, ‘‘Development of Local Government Debt Financing Markets: Application of a Market Based Framework,’’ Public Budgeting & Finance 26, no. 1 (2006): 88–119 and Blane D. Lewis, ‘‘On-Lending in Indonesia: Past Performance and Future Prospects,’’ Bulletin of Indonesian Economic Studies 43, no. 1 (2007): 35–57.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 29
120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Jan-01 Apr-01 Jul-01 Oct-01 Jan-02 Apr-02 Jul-02 Oct-02 Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08
Rupiah (Blns)
FIGURE 1 Subnational government bank deposits, 2001–2007
Current Rupiah
Constant Rupiah
time) deposits in commercial banks in the country. The subnational government deposit data employed in this investigation have been aggregated at the provincial level. That is, for each province in the country, deposit data comprise those for the provincial government and all district governments within the province. The individual government level data have not been made available for use in this study due to BI’s concerns about customer confidentiality.9 Figure 1 details the rise of subnational reserves since 2001. Before the start of decentralization, subnational governments held approximately Rp 7 trillion in reserve funds. Between the start of 2001 and the end of 2007, subnational reserve funds expanded by an order of magnitude, reaching just under Rp 70 trillion. Reserves grew at an annual rate of 37 percent during the indicated period, in nominal terms and at a rate of just 425 percent per year in real terms. Observe the pattern of subnational government savings during any given fiscal year. Subnationals tend to increase their deposits during the first three quarters of the year and then draw down on reserves in the last quarter, the period during which most provincial and district government spending takes place. Among other things this shows that central government anxiety about the ‘‘100 trillion rupiah problem’’ that subnational reserves supposedly represent is perhaps needlessly exaggerated, since the figure in question was just the peak in the year on year savings cycle. That is, what matters in this regard is
9. With a view to increasing transparency and monitoring subnational fiscal activity and performance, the Ministry of Finance formally requires subnational governments to report their reserve funds (and other assets, as well as liabilities). Unfortunately, most subnationals do not provide the relevant information as required and the Ministry of Finance has yet to employ available sanctions in an attempt to force them to do so.
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TABLE 1 Subnational Reserves, Nominal and as Percent of Expenditure
Provincial (Rp Bln) District (Rp Bln) Total (Rp Bln) Provincial (% Exp) District (% Exp) Total (% Exp)
2000
2001
2002
2003
2004
2005
2006
2007
4,471 2,940 7,411 36.2 7.9 14.9
7,762 10,796 18,558 33.8 15.1 20.1
8,507 13,592 22,099 26.4 15.1 18.6
8,103 13,350 21,453 20.8 11.6 14.4
9,851 14,595 24,446 23.4 12.3 16.1
15,761 25,949 41,710 32.5 19.0 24.2
19,517 49,009 68,526 30.1 26.8 28.6
19,146 48,734 67,880 26.4 24.8 25.3
Source: Authors’ own calculations based on Bank of Indonesia and Ministry of Finance Data.
the end of year balance, which in this case was approximately Rp 70 trillion, a considerably smaller amount. Table 1 shows provincial and district reserve funds at the aggregate level over the period in question. Note that at the end of 2000, provincial reserves exceeded those of districts. Provinces held 72 percent of total reserves compared with just 28 percent for districts. During the period, district reserves grew at a pace of almost 50 percent per year, whereas the reserve funds of provinces grew at only 23 percent per annum. At the end of the period districts maintained about 60 percent of total slack funds and provinces only 40 percent. It is common to examine total reserves as a percent of general revenues or expenditures or some similar standard. Since reserves are ostensibly to be used to smooth out revenues and spending, the normalization gives a better idea of the ďŹ scal importance and relative magnitude of reserves, over time and across units of government. Table 1 also shows provincial, district, and total subnational reserves as a percentage of spending, from end 2000 to end 2007. Total reserves were just 15 percent of expenditure before decentralization, rose to 19 percent in 2002, declined to 14 percent in 2003, increased steadily to 29 percent in 2006, and ďŹ nally, declined slightly to 25 percent at the end of 2007. Over the period, district reserves increased from just 8 percent of expenditures to around 25 percent. On the other hand, provincial reserve funds decreased from 36 to 26 percent of expenditures. Figure 2 provides a view of end 2007 reserves as a percentage of expenditures, across provinces.10 Reserves and expenditures refer to those of the particular province in question along with those of all district governments within the province. (Within provinces, the data do not allow us to separate provincial from district reserves.) The distribution of funds is quite skewed. Subnational governments in Aceh, Kalimantan Timur, and Riau 10. At the time of this paper was written, disaggregated subnational government expenditures were not yet available for 2007. As such we divide 2007 reserves by 2006 expenditures. Since 2007 expenditures are likely to have exceeded those for 2006, Figure 1 probably overestimates the reserves to spending ratio.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 31
FIGURE 2 Subnational reserves as percentage of expenditure, 2007 0
10
20
30
40
50
60
70
80
all hold reserves in amounts well over 50 percent of expenditures.11 Subnational governments in these provinces are the principal beneficiaries of shared natural resource revenues, especially those from oil and gas. Subnationals in these three locations possess more than 30 percent of total subnational reserves. At the other end of the scale, subnationals in Nusa Tenggara Barat, Sulawesi Tenggara, Lampung, and Sulawesi Utara all have reserves comprising o10 percent of total expenditures. Subnationals in these locations are among the fiscally poorest in all of Indonesia.
SUBNATIONAL FISCAL SLACK: SIZE RELATIVE TO NEED In order to discern the extent to which the level of subnational government reserves reported above represents excess savings it is necessary to define an objective standard against which such reserves can be compared. A rule of thumb in the United States suggests that state governments should keep in reserve an amount of funds equivalent to about 5 percent of current expenditures. Most analysts argue that municipalities in the United States may, in fact, need more reserves because their revenues are more volatile.12 11. The overall average reserves to expenditure ratio decreases from around 25 percent to o20 percent when Aceh, Kalimantan Timur, and Riau are excluded from the calculation. 12. See Kenneth Kriz ‘‘The Optimal Level of Local Government Fund Balance: A Simulation Approach,’’ State Tax Notes, January, 2003. He estimates that municipalities in Minnesota should maintain reserve fund balances of between 16 and 91 percent of annual revenues in order to assure a 3-percent rate of growth of annual expenditures, given various scenarios regarding revenue volatility.
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Many observers in the United States claim that, in practice, states do not maintain reserve fund balances of sufficient size, even according to the somewhat crude 5 percent rule.13 Others contend that they do.14 Interestingly, it appears that most analysts are more comfortable with the magnitude of reserve holdings of U.S. municipalities. It’s certainly clear that, in the event, municipalities do maintain reserves in relatively larger sums.15 The above observations may not be particularly relevant for Indonesian subnationals, since the size and composition of revenues is significantly different from those of U.S. states and municipalities. Moreover, it is not productive to attempt to generalize about the reserve fund requirements of Indonesian subnational governments, as a whole. Ultimately the optimal size of any subnational’s reserves depends on the potential (future) volatility of the public revenues of the particular government in question. In Indonesia since decentralization, the most important subnational revenues have consistently grown and have not yet experienced declines of any significant magnitude.16 As such, it is difficult to estimate the future volatility (especially on the downside) of major subnational sources of public revenue, either in the aggregate or for individual provinces or districts. This is not to say, however, that subnational revenues will not necessarily experience a significant downturn at some point in the future. Perhaps the most significant risk for regional revenues relates to the price of oil. The pools of finance of three of the major sources of subnational government revenueFproperty tax receipts from the oil sector, nontax oil revenue sharing, and block grants (DAU)Fare all derived as a direct or indirect function of the price of oil. The following paragraphs discuss the manner in which oil helps determine these major sources of revenue and simulate the impact of decreases in the price of oil on revenues.
13. Alan Berube and Iris J. Lav ‘‘When it Rains it Pours: A Look at the Adequacy of State Rainy Day Funds and Budget Reserves,’’ State Tax Notes, May, 1999, and Phillip G. Joyce, ‘‘What’s So Magical about Five Percent? A Nationwide Look at Factors that Influence the Optimal Size of State Rainy Day Funds,’’ Public Budgeting & Finance 21, no. 2 (2001): 62–87. 14. Gary C. Cornia and Ray D. Nelson ‘‘Rainy Day Funds and Value at Risk,’’ State Tax Notes, August, 2003 and Christian Gonzalez and Arik Levinson ‘‘State Rainy Day Funds and the State Budget Crisis of 2002,’’ State Tax Notes, August, 2003. 15. Charlie B. Tyer, ‘‘Local Government Reserve Funds: Policy Alternatives and Political Strategies,’’ Public Budgeting & Finance 13, no. 2 (1993): 75–84 and Michael Shelton and Charlie B. Tyer (with Holly Hembree). ‘‘Local Government Reserve Funds and Fund Balance: Some Applications of Business Concepts,’’ Municipal Finance Journal 21, no. 1 (2000): 1–18, have demonstrated, for example, that the majority of municipalities in North and South Carolina hold reserves in amounts greater than 50 percent of general expenditures. And Justin Marlowe, ‘‘Balance, Net Assets, and Working Capital,’’ in Handbook of Public Financial Management, ed. Howard Frank (New York: Taylor & Francis, 2006), provides some evidence to show that a recent sample of municipalities in Michigan and Minnesota also hold reserves in amounts at least 50 percent of general fund spending. 16. The most important own-source revenues for provinces are taxes on vehicle registration and change of title while those for districts are taxes on electricity consumption and hotel and restaurant sales.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 33
TABLE 2 Impact of Change in Oil Price on Regional Revenues (Rp Blns) Revenue source Oil Sector Property Tax Shared with Regions Nontax Oil Revenue Shared with Regions DAU Dervied from Oil Revenue Total Regional Oil-Based Revenue
Rp (Blns) Oil price 5 $100
Rp (Blns) Oil price 5 $90
Rp (Blns) Rev loss
19,947 37,728 50,675 108,350
17,952 32,914 44,518 95,384
1,995 4,814 6,157 12,966
Source: World Bank, Jakarta. Simulations assume 2007 cost structure and tax rates, 923 thousand barrels per day oil production, and an exchange rate of $1 5 Rp 9,150.
Domestic nontax revenue from the oil sector is shared with regions. In 2008, the regional share of state oil revenues was 15 percent of total realized nontax revenues in the sector. The shared revenues are returned to the provincial point of origin and distributed among both producing and nonproducing districts within the province. Recent World Bank estimates put the elasticity of shared oil revenues with respect to changes in the dollar price of oil at 1.28.17 The DAU pool of finance is calculated each budget year as 26 percent of total planned domestic revenues (net of amounts shared). Oil revenues are, of course, a major source of national revenues and thus have a major impact on the size of the DAU. World Bank staff estimate that the elasticity of oil sector-based DAU revenues with respect to changes in the budgeted price of oil is approximately 1.21.18 Property tax in Indonesia derives from five sectors: urban, rural, estates, forestry, and mining (in particular, oil). Central government retains 9 percent of total property tax revenues as an administrative charge and distributes the remaining 91 percent to regions in various manners depending on the sector. Property taxes from the oil sector amount to about 75 percent of the total property taxes shared with subnational governments.19 We have no specific information on the elasticity of subnational property taxes from oil with respect to changes in the price of oil and so we simply assume the elasticity to be one. While the price of oil has recently risen significantly and remained at historically high levels, it may not do so in perpetuity, of course. And if the price oil were to drop in world markets so too would subnational public revenues in Indonesia. Table 2 simulates the impact of changes to the price of oil on oil sector property taxes shared with regions, 17. Tim Bulman ‘‘A Note on Oil Prices and Intergovernmental Transfers,’’ mimeo, World Bank, Jakarta, Indonesia (2008). 18. Ibid. 19. The oil sector property tax operates somewhat like a sales tax, where property owners’ liabilities are derived as a percentage of total sales in the sector and not based on capital value of structures. See Blane D. Lewis, ‘‘Property Taxation in Indonesia: Measuring and Explaining Administrative (Under-) Performance,’’ Public Administration and Development 23, no. 3 (2003): 227–239.
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nontax oil revenue sharing, and the DAU.20 We consider an oil price of US$100 per barrel as the base case.21 The table shows the impact of a decrease in the price of oil from US$100 per barrel to US$90 per barrel.22 As can be seen in the table, potential reductions in regional revenue due to a decrease in the oil price are not insignificant. A decrease in the price of oil from US$100 per barrel to US$90 per barrel results in a loss of revenue of Rp 1,995 billion, Rp 4,814 billion, and Rp 6,157 billion from property taxes, revenue sharing, and the DAU, respectively. The total decline in revenue under the simulated circumstances is just oRp 13 trillion. This sum amounts to about 20 percent of end 2007 subnational reserves (Rp 68 trillion). Thus, in the aggregate, subnationals would appear to have more than sufficient funds on reserve to smooth out expenditures in the event of a one time 10 percent drop in the price of oil. Longer-term declines in the oil price would be more problematic for subnationals, however. The results here suggest, for example, that a 10 percent drop in the price of oil, sustained for 5 years, would eliminate total provincial and district reserves, if subnationals were to use the slack resources to maintain revenues at current levels, all other things remaining equal.23 Larger decreases in the price of oil would eliminate fiscal reserves more quickly. The impact of an oil price decrease (limited and temporary, or otherwise) on the revenues of individual subnational governments would differ, of course. It is possible that even reasonably small and transitory decreases in the price of oil may reduce the revenues of some subnationals, those at or near the bottom of Figure 2, say, to a point at which they could not be covered by reserves. All things considered, the main problem with stock of subnational reserves in Indonesia would not appear to be one of excess level but to its uneven distribution across regions of the country.
AN ECONOMETRIC EXPLANATION OF SUBNATIONAL SURPLUSES The approach used in this paper to econometrically explain subnational surpluses and reserves has a long history.24 In broad terms, the (Gramlich-Galper) method posits that the subnational government surplus is a positive function of major (untied) fiscal trans20. A small amount of revenue from gas is also included in the simulations. The price of gas is pegged to the price of oil. As of 2008, the subnational share of nontax gas revenue was 30 percent. 21. The oil price assumption in the revised 2008 state budget was US$95 per barrel. The oil price for fiscal year 2009 is budgeted as US$100 per barrel (and may be subject to further revision). We use the latter figure for convenience. 22. The simulations assume that the 2007 cost structure of and tax rates in the oil sector prevail, a constant production level of 923,000 barrels per day, and an exchange rate of US$1 5 Rp 9,150. 23. Among other things, this assumes no additional accumulation of subnational reserves in the interim. 24. E. Gramlich and H. Galper, ‘‘State and Local Fiscal Behavior and Federal Grant Policy,’’ Brookings Papers on Economic Activity (1973) 1: 15–65 and E. Gramlich, ‘‘The 1991 State and Local Fiscal Crisis,’’ Brookings Papers on Economic Activity 2 (1991): 249–287.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 35
TABLE 3 Subnational Data, Totals, 2001–2007 (Constant Rupiah) 2001
2002
2003
2004
2005
2006
2007
Revenue Sharing (Rp Blns) 33,367 37,726 45,251 49,862 57,210 69,184 68,461 Block Grants (Rp Blns) 100,638 104,852 111,042 110,704 102,194 155,278 164,787 Reserves (Rp Blns) 30,949 33,504 30,946 32,957 48,020 73,049 67,872 GDP (Rp Trns) 2,306 2,479 2,588 2,861 3,197 3,338 3,782 GDP deflator 60.0 66.0 69.3 74.2 86.9 93.8 100.0 Population (Mlns) 206 211 214 217 221 224 227 Source: Authors’ own calculations based on Ministry of Finance data.
fers to subnational units and a negative function of subnational expenditure needs. In this scheme, the subnational surplus is but one part of a larger fiscal model comprising subnational spending and taxes, as well, both of which are also a function of transfers and expenditure needs.25 We use the methods here to determine subnational surplus during the period 2001–2006. Table 3 supplies aggregate data on variables of interest in this analysis. It shows the amount of the major transfers to subnational governments, that is, revenue sharing and the general purpose block grant, along with data on subnational reserves, GDP, the GDP deflator, and population for the period 2001–2007. The data are shown for background purposes only and are not discussed in much depth. Three points are worth highlighting, however. First, it should be emphasized that both revenue sharing and the general purpose block grants are untied. That is, the expenditure of those funds is completely at the discretion of subnational governments. While subnationals do receive some tied funds in the form of a special purpose capital grant (DAK), those transfers are very limited in amount and have not been included in this analysis. Second, notice the sizable real increase in shared revenues in 2005 and then again in 2006. This growth was largely driven by the significant rise in the oil price during those 2 years, which forces increases in subnational oil-based revenues, as described above. Third, note the substantial increase in block grants in 2006. This is also a function of the rising price of oil, as well as the fact that government adopted a reasonable estimate of that price in the state budget for the first time in many years. Previously, the government purposefully underestimated the price of oil in the national budget in order to 25. Blane D. Lewis, ‘‘Indonesian Local Government Spending, Taxing, and Saving: An Explanation of Pre- and Post-Decentralization Fiscal Outcomes,’’ Asian Economic Journal 19, no. 3 (2005): 291–317, employed the general Gramlich-Galper framework to study Indonesian local government spending, taxing, and savings just before and after decentralization.
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reduce its transfer obligations to the regions.26 All other things being equal, a higher budgeted price of oil drives up planned domestic revenues, which serve as the basis for determining the pool of finance for the general purpose block grants. In any case, the considerable increase in revenue sharing and block grants in 2005 and 2006 corresponds closely with the significant rise in subnational surplus during those 2 years, as shown in Figure 1. This suggests at least one possible factor that might help determine the annual subnational surplus and thus the accumulation of reservesFincreases in untied intergovernmental transfers, as the Gramlich-Galper model indeed posits. This is investigated in more detail below. We specify a simple two-way fixed effects model to operationalize the methods described above. More particularly, it is assumed that: yit ¼ a0 þ ai þ gt þ b0 xit þ eit
ð1Þ
where y is per capita subnational government surplus, defined as the difference between per capita reserves in the present and just previous periods. In addition, x is a vector of explanatory variables, a, g, and b are parameters to be estimated, e is the usual error term (with mean and variance equal to zero and s2, respectively), and subscripts i and t refer to the province in which subnational governments are located and the year, respectively. The data set comprises 176 observations on 30 provinces over the period 2001–2006.27 Explanatory variables comprise, among others, tax and nontax shared revenues and the DAU.28 Transfer variables are measured in per capita terms. We expect per capita surplus to rise along with increases in intergovernmental transfers, all other things being equal. Prices faced by subnational governments are perhaps the broadest indicator of subnationals’ differential expenditure needs and we use the government’s geographic price index as a proxy for those prices-cum-expenditure needs.29 We hypothesize that per capita surplus would decline as the price index increases due to increasing cost of inputs and higher spending. All variables used in the econometric analysis are defined more precisely in Table 4. 26. As noted, the pool of finance for the DAU is based on planned domestic revenues. However, if realized domestic revenues exceed 130 percent of planned revenues at the time of midyear budget amendments, then amounts in excess of that 130 percent are transferred to the regions. Revenues shared with subnational governments are determined as a function of actual national revenues. 27. Data are available for 29 provinces for all 6 years and for one recently recreated province (Sulawesi Barat) for 2 years. Jakarta is excluded from the analysis due to lack of information on transfers. 28. Tax and nontax shared revenues are combined in the empirical analysis here. Estimation of the model with the two types of transfers treated separately resulted in severe problems of multicollinearity. Specific-purpose grants (DAK) are not considered as a possible explanatory factor of surpluses. As noted, such grants are very small in comparison with others and are of less interest in the current context. 29. The government geographic price index is based on consumer price information gathered in 50 cities across Indonesia, where each of the 30 provinces is represented by at least one city. In cases where a province is represented by only one city, that city’s index value is used for the province; where a province is represented by more than one city, the average of the price indices is used. The base year of the index is 2002 and the cross provincial average in that year is equal to 100.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 37
TABLE 4 Variable Names and Definitions Name Dependent variable SPLSPC Explanatory variables SHRVPC BLKTRPC GPI
Definition Total subnational government surplus, within province, per capita Total revenue sharing transfers to subnational governments, within province, per capita Total block grants to subnational governments, within province, per capita Geographic price index
Table 5 provides the regression results. In addition to the output for the two-way fixed effects model in equation (1), for comparison purposes, the table also shows the results for the one-way (i.e., provincial) fixed effects, and the simple OLS (i.e., with no fixed effects) versions of the model. For each of the models, the table provides the estimated coefficients of the independent variables, the relevant t statistics, and an indication of the statistical significance of the estimated coefficients. In addition, the number of observations, log-likelihood function, restricted log-likelihood function, w2, and adjusted R2 values are shown at the bottom of the table. The usual likelihood ratio and F tests indicate that the two-way fixed effects model performs best among the three.30 We restrict discussion of the output to the two-way model. As the table shows, the marginal effects of an increase in per capita shared revenues and per capita block grants are 0.62 and 0.14, respectively; both coefficients have the expected signs and are statistically significant. At the margin, therefore, an extra rupiah of revenue sharing leads to nearly four and a half times as much savings as does an additional rupiah of block grants. At the point of means of relevant variables, these marginal effects lead to estimates of elasticities of per capita surplus with respect to per capita revenue sharing and per capita block transfers of 0.98 and 1.17, respectively. In other words, a percentage increase in block grants would lead to higher subnational savings than same percentage increase in revenue sharing would. This is not a trivial matter from a policy perspective. Increases in the pools of finance for transfers are typically implemented in percentage terms. In 2008, for example, the government increased the subnational pool of finance for the DAU from 25.5 to 26 percent of planned domestic revenues. In 2009, it will increase the region’s share of national oil revenue from 15 to 15.5 percent. The estimation results here 30. More specifically, the tests indicate that the one-way fixed effects model does not improve on the fit of the simple OLS model but that the two-way fixed effects model performs better than either the one-way or the OLS model. Detailed results are available from the authors upon request.
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TABLE 5 Surplus Regression Outputa OLS
One-way fixed effects
Two-way fixed effects
Variable
Coefficient
t stat
Coefficient
t stat
Coefficient
t stat
Constant SHRVPC BLKTRPC GPI No. Observations Log likelihood Restr log likelihood Chi square Adjusted R2
2,279,000 0.411 0.058 42,099 176 2,299.7 2,393.8 188.3 0.649
7.032* 12.683* 3.248* 7.578*
F 0.592 0.092 44,866 176 2,291.9 2,393.8 203.8 0.613
F 6.139* 2.432 7.288*
4,355,800 0.619 0.141 79,983 176 2,172.3 2,393.8 253.0 0.694
3.044* 6.987* 3.939* 3.781*
a *
Dependent variable is SPLSPC. Coefficient is statistically significant at the 0.01 level.
imply that the percentage increase in block grants will have led to larger subnational savings than the percentage increase in oil revenue sharing, all other things being equal. Note also that the coefficient of GPI is negative and statistically significant, as hypothesized. The outputs implies that a one point increase in the price index results in nearly Rp 80,000 decline in the per capita surplus, all else remaining the same. It is instructive also to consider the two sets of fixed effects from the estimation of equation (1) in more detail. Table 6 provides the estimated fixed group and time effects. The group effects are ranked from lowest to highest. Note that the provinces with the some of the smallest fixed group effectsFRiau and Kalimantan Timur, especiallyFare also those with the largest reserves. This implies that subnationals in those provinces actually tend to spend more and save less than would typically be the case, holding transfers (and prices) constant. On the other hand, the fixed effects for some provinces on JavaFJava Tengah, Banten, and Java TimurFare among the largest. The interpretation here is that subnationals in those provinces actually spend less and save more than is usual, given transfers (and prices). More generally, we might conjecture that those subnationals with large positive fixed group effects could be suffering from some kind of capacity constraints regarding the spending of available funds. The results for the fixed time effects are also illuminating. As the table shows, these fixed effects continuously increase over time until 2006 at which point they decline precipitously. This may indicate that subnational governments are perhaps finally beginning to learn how to spend their resources to a fuller extent. It’s worth noting that the slight decline in reserves in 2007, as seen in Figure 1 and Table 1, is at least consistent with this hypothesis.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 39
TABLE 6 Fixed Group and Time Effects Group/province
Fixed effects
Time/year
Fixed effects
Riau Sumatra Barat Kalimantan Timur Papua Sumatra Selatan Aceh Sulawesi Tengah Malluku Utara Sulawesi Tenggara Maluku Kalimantan Tengah Sumatra Utara Sulawesi Barat Gorontalo Sulawesi Utara Bengkulu Kalimantan Selatan Lampung Sulawesi Selatan NTT Yogyakarta Kalimantan Barat Bali Java Barat NTB Java Tengah Banten Bangka Belitung Java Timur Jambi
438,349 376,634 300,637 202,296 110,912 47,182 35,017 27,228 22,125 19,627 15,049 9,226 4,993 5,321 13,104 21,410 28,283 35,198 36,530 36,603 37,186 39,590 45,797 46,864 51,449 53,731 65,518 82,750 86,364 198,051
2001 2002 2003 2004 2005 2006
35,270 22,186 31,900 35,051 107,968 160,039
EXAMINATION OF AUDITED SUBNATIONAL GOVERNMENT BUDGETS The regulatory framework for subnational government budgeting is found in Law 32/04, Government Regulation 58/05, and Ministry of Home Affairs Decree 59/07. The regulations do not treat the development, use, and management of formal reserve funds (dana cadangan) in much depth. Subnational governments are simply informed that they may create such funds and that to do so they must issue a local regulation, noting the
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general intent of the dana cadangan, along with its size, source of funds,31 and the kinds of activities that will be financed from the formal reserves. Subnational governments must create special bank accounts for reserve funds. In the event that reserve funds are not put to immediate use they may be invested in financial instruments with ‘‘steady return’’ and ‘‘low risk.’’32 Any earnings from such investments are to be channeled back into dana cadangan. Finally, subnational governments are required to report their reserves on their balance sheets, which must be sent to the Ministry of Finance for review annually. In the event, it appears that very few subnational governments create formal reserve funds of the kind outlined in regulation and described above. Our review of subnational audited budgets revealed that o5 percent of total subnational government funds on deposit in commercial banks were held in formal reserve fund accounts. This, by itself, suggests that the accumulation of subnational reserves may be adhoc and inadvertent. If subnational governments do not plan for budget surpluses, then they generate surpluses unintentionally, either by underestimating revenue, by overestimating expenditure, or by some combination of the two.33 We explore the extent to which subnational governments misestimate their revenues and expenditures just below. We base the analysis on the audited budgets and budget out-turns of 27 (out of 31) provinces and 220 (out of 440) districts over the 2004–2006 period. The provincial and district budgets used for this analysis were not chosen randomly but selected based exclusively on the availability of information. Overall, the selected provinces and districts cover 89 and 63 percent of the total population, respectively. In addition, we highlight key results from some limited field work carried out in conjunction with this study. The field work comprised structured interviews with subnational government finance officials from three provinces and 10 districts.34 Table 7 presents information on planned and realized revenues, by major source, and expenditures, by main type, for provinces and districts in our sample of subnational governments for 2006. (The results for 2004 and 2005 are similar and are not shown here.) The initial point to be gleaned from the table concerns the subnational deficit/ surplus. As the table shows, while both provinces and districts planned for fiscal deficits, in the event they ran quite significant fiscal surpluses. As can be readily be determined from information in the table, provinces planned for a deficit in the amount of just over 11 percent of (planned) expenditures but in the end ran a surplus of 7 percent of (re-
31. Regulations assert that all regional revenues may be used to fund such reserves, except the special purpose grant. Furthermore, subnationals may not use borrowed funds to create reserves. 32. As examples of such financial instruments the regulations cite bank deposits, government treasuries, and other government secured investments. 33. Tyer (1993). 34. Andre Oosterman and Bambang Tata Samiadji ‘‘Increases in Surpluses of Regional Governments in Indonesia: An Empirical Analysis,’’ mimeo, Final Report Ministry of Finance. Decentralization Support Facility, Jakarta, Indonesia, 2008.
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 41
TABLE 7 Planned and Realized Subnational Revenues and Expenditures, 2006 (Blns Rp) Provinces Planned Realized Difference Revenues Own-Source Shared DAU DAK Other Total Expenditures Current Capital Total Deficit/surplus
Districts |%|
Planned
Realized Difference
|%|
27,308 16,758 11,959 10 4,676 60,711
28,232 18,412 11,961 10 5,154 63,770
925 1,655 1 0 478 3,059
7.8 14.0 0.0 0.0 4.1 25.9
8,294 20,436 71,358 5,758 6,979 112,825
9,322 25,488 71,422 5,817 7,493 119,542
1,028 5,052 64 59 515 6,716
4.3 21.1 0.3 0.2 2.2 28.1
52,027 16,337 68,364 7,653
46,491 13,145 59,636 4,134
5,536 3,192 8,728 11,787
47.0 27.1 74.1 100.0
88,572 34,323 122,894 10,069
79,532 26,170 105,702 13,840
9,039 8,153 17,192 23,909
37.8 34.1 71.9 100.0
Source: Authors’ own calculations based on audited provincial and district budgets for 2006.
alized) expenditures; and districts planned for a deficit in the amount of 8 percent of expenditures but ran a surplus of 13 percent of spending. Table 7 also shows the difference between planned and realized revenues and expenditures. These differences are shown in nominal terms and as a percentage of the difference between the planned deficit and realized surplus (in absolute value). We term the latter the total forecasting error. The percentage figures show the contribution of the revenue and expenditure forecasting errors to the total forecasting error. The revenue forecasting error determines about 26 and 28 percent of the total forecasting error of provinces and districts, respectively. In both cases, underestimated shared revenue makes up the bulk of the problem; it is important to note that most of the difficulty in this regard relates to revenue sharing in the natural resources sectors, particularly oil. Forecasting errors related to own-source revenues and other revenues are considerably less problematic. And such errors associated with DAU and DAK are trivial. Inaccurate subnational planning associated with shared revenues in the oil sector is a function of two main underlying problems. The first concerns the general difficulty the central government has in correctly forecasting the price of oil and the impact that such inexact forecasts have on subnational revenue planning. The Ministry of Finance provides estimated revenue sharing distributions to subnational governments for a given year at the end of the before fiscal year, based on the forecasted price of oil at the time. Recently the price of oil used by government at the end of one fiscal year for such purposes has been significantly less than the actual average price in the following fiscal
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year. In 2005, for example, the end of year forecast for oil revenue sharing with regions was about Rp 16.5 trillion; in the event, realized revenue sharing in the sector was closer to Rp 19 trillion in 2006 (representing a 15 percent forecasting error). It is the former figures that work their way into subnational revenue budgets and the latter that account for realized revenues of subnationals. As such, it is easy to see how provinces and districts underestimated their revenues from this source during 2006. The second problem relates to the timing of natural resource revenue payments to regions. The payment of revenue shares has recently been made to subnationals rather late in the fiscal year. In 2006, the central government did not make any natural resource revenue transfers to regions until the third quarter. It seems that this problem may be related in the first instance to cash flow difficulties of the central government. That is, the central government itself typically does not get access to much natural resource revenue itself until somewhat late in the year and it simply chooses to wait until a convenient time to transfer onward to subnational governments their respective shares of the revenue. In any case, subnational revenue received late in the fiscal year is difficult to spend in full. Expenditure forecasting errors explain most of the total forecasting error of both provinces and districts. As Table 7 shows overestimated expenditure makes up 74 and 72 percent of the total error of provinces and districts, respectively. Provinces apparently have more difficulty in forecasting current expenditures while districts seem to underforecast current and capital spending to about the same extent. Three main problems drive the overestimation of spending: inflexible budget rules, the national anticorruption program, and insufficient subnational capacity in project development and implementation. Subnational governments are required to prepare very detailed expenditure budgets. Each unit (dinas) of the province or district develops a budget, according to exhaustive spending categories, including those by type (or object) and (economic) function. The budget is subsequently approved (by the relevant higher level government and the subnational parliament) and expenditures are then authorized. However, no provincial or district government dinas is allowed to spend more than the budget ceiling, or even reallocate planned spending from one budget category to another, unless it undertakes to formally revise its budget, something that requires subnational parliamentary approval. Thus, all subnational government unit requests for additional spending must be coordinated and presented to the subnational parliament for approval. This is a time consuming process that some but not all subnational governments manage to carry out a maximum of one time each year. The end result is, invariably, less spending than originally envisioned. The recent and ongoing national program against government corruption has been a positive force. At the same time, however, it also appears to have played a role in constraining investment spending by subnationals. The basic problem seems to be in the formation of local tender committees, which are required by government regulation to review proposals and award construction contracts. Subnationals appear to have found it increasingly difficult to find officials willing to take part in such committees. In a number of cases, officials have been visited by police immediately after their names have
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 43
been proposed as tender board members but even before meetings have take place. The implicit suggestion is that the police are acting in an overzealous manner in seeking out potential corruptors. Of course they may also be searching for opportunities to participate in fraudulent activities. In any case, this has made many subnational government officials wary of participating in tender committees. The resulting delays in forming committees (if they are formed at all) have adversely affected public investment in infrastructure. Finally, perhaps the most important cause of underspending concerns the lack of subnational government capacity to plan and implement development projects. It is difficult to provide objective measures of this lack of this rather intangible phenomenon. However, capacity constraints came out clearly in the interviews conducted as part of this research. It seems that many subnational government officials have a limited understanding of their roles as providers of public infrastructure services. Officials that do have some appreciation that their main function is to spend on public capital and deliver services often have in mind infrastructure of rather limited scale, believing that major public expenditures should be made by the central government instead. In this case, they appear to see their role as one relegated to lobbying appropriate central officials to make needed public investments rather than arranging to undertake these investments themselves.35
SUMMARY AND POLICY IMPLICATIONS Policymakers in Indonesia have become increasingly concerned at the rapid and significant buildup of unspent balances at the subnational level since decentralization. Nominal subnational reserves grew at an annual rate of 37 percent between end 2000 and end 2007. As of 2007, reserves amounted to just oRp 70 trillion, an order of magnitude larger than in 2000. During the period in question, district reserves grew even more swiftly, almost 50 percent per year. District slack resources now comprise about 60 percent of the total, up from 30 percent just before decentralization. It is difficult, however, to determine the extent to which subnational reserves are, in fact, excessive. While Indonesian provinces appear to maintain reserves in larger proportions of total expenditure than their state counterparts in the United States, for example, district governments in Indonesia do not seem to hold slack funds in amounts exceeding those of many U.S. municipalities. In the end, the optimal amount of reserves that Indonesian subnationals should maintain is a function of potential revenue volatility, not what transpires in other countries. That is, subnationals need to have sufficient funds on reserve that they can use to keep expenditures at constant levels, in the event of a downturn in public revenues. In Indonesia, subnational revenues from all sources have 35. Blane D. Lewis and Jasmin Chakeri, ‘‘Central Development Spending in the Regions Post Decentralization,’’ Bulletin of Indonesian Economic Studies 40, no. 3 (2004): 379–394.
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consistently grown since decentralization and, as such, it is difficult to estimate the potential near-term revenue declines. One apparent downside risk to subnational revenues concerns the price of oil. Three of the most important sources of subnational revenueFoil sector property tax, revenue sharing from oil, and block grantsFare a function of the oil price. While recently the price of oil has increased significantly and has remained at historically high levels, it is not impossible that the price might at some point decline. The analysis in this paper has shown that subnational governments have more than sufficient funds to adjust to 10 percent decline in the price of oil, as long as such a decrease is of short duration. But if the oil price were to decline by 10 percent and remain at such levels for a sustained period of time, say 5 years, subnational reserves could be depleted to a considerable degree. Even small and temporary reductions in the oil price may result in revenue losses that exceed existing reserves of subnationals. Not surprisingly, the annual subnational surplus and the accumulation of reserves are strongly associated with increases in intergovernmental transfers. Revenue sharing with regions increased significantly in 2005 and 2006 and the DAU also grew substantially in 2006. Subnationals increased their reserve holdings considerably during those 2 years. More generally, the empirical evidence in this paper suggests that the subnational government marginal propensities to save out of revenue sharing and DAU are 0.62 and 0.14, respectively. The elasticity of the subnational government surplus with respect to revenue sharing is 0.98 and with respect to the DAU is 1.17. This study finds that the accumulation of reserves by subnational governments has been largely inadvertent. Very few provinces and districts have set up formal reserve accounts of the kind that the central government intends for the management of slack funds. In fact, subnational governments appear, in the recent past at least, to have planned for reasonably sized deficits, as opposed to the substantial surpluses that have actually obtained. The analysis here has shown that the underestimation of shared natural resource revenues, to a certain extent, and the overestimation of current and capital spending, more importantly, have both led to unplanned subnational savings. Underlying causes of shared revenue underestimation relate to the inherent difficulties that the central government has in accurately estimating the oil price and the related size of transfers to regions and also to the delays that subnationals experience in getting access to their shared revenues. Overestimation of spending appears to be a function of restrictions on the execution of expenditure budgets, worries over corruption charges and related difficulties in setting up tender committees, and, perhaps most importantly, lack of subnational capacity to design and implement capital projects. The question that confronts Indonesian policymakers is: what should be done about the buildup of subnational reserves? We would argue that the central government need not take any major action at the moment to directly limit or reduce subnational reserves. As noted above, the extent to which reserves are, in fact, excessive is not clear. Moreover, there is some evidence that subnational governments are starting to learn how to spend their resources more fully. In 2007, provinces and districts both ran small deficits, for
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 45
example. If subnationals should continue to accumulate reserves, because of further and sustained increases to the price of oil, for instance, then policymakers might consider developing a formal centrally managed stabilization fund. In that case the central government could opt to compel subnationals to contribute resources to the fund. The purpose of the fund would be to smooth out subnational expenditures in the event of an unexpected and severe economic downturn, such as the recent financial crisis, or as needed at such a time when the country’s (current) oil reserves become depleted, which in around 13 years time it is estimated that they will.36 In the meantime, the central government should concern itself with better equalizing the distribution of current fiscal resources across subnational governments and thus the stock of reserves across regions. In this regard, the center should finally and completely remove the so-called hold harmless condition attendant to DAU distributions, which assures all subnational governments that they receive block allocations not smaller than they did the previous year. By law, the government was required to have eliminated the hold-harmless rule starting in 2008. It did not do so completely, however, but instead put in place a transitional arrangement that cushioned the expected revenue losses of regions. Of course, there is a limit to the equalization that can be achieved via the DAU, given the large size and extreme geographic concentration of natural resource revenue transfers, unless the government is prepared to revisit the allocation procedures of the latter. It seems unlikely that the central government will take on this politically sensitive issue in the near future. Central government should use more sensible forward estimates of the price of oil in forecasting revenue to be shared with subnationals, which the latter use for their own planning purposes. Although the difficulties with accurately estimating the future oil price are well known, the central government has thus far consistently underforecasted the price by a significant margin. The underestimation is partly purposeful, of course. Government obligations regarding DAU transfers to subnationals are a function of planned domestic revenues, not actual revenues. When the center underestimates the price of oil in the state budget at the beginning of the fiscal year, planned domestic revenues are lower than they would otherwise be, and thus the center’s fiscal obligations to the regions are reduced. The cost is that regions with significant natural resource shares underestimate their revenues, thereby resulting in a further buildup of their reserves. The government may have already considered this tradeoff and decided to continue with the deliberate underestimation of the oil price. But then central officials should not complain too vociferously about the resulting buildup of unspent balances. In addition, the center should make an effort to distribute natural resource revenues in a timelier manner. There is some cause for optimism on this count as the Ministry of Finance has recently issued a regulation (Minister of Finance Decree 7/08) that permits it 36. Cut R. D. Agustina, Javier Arze del Granado, Tim Bulman, Wolfgang Fengler, and Mohamad Ikhsan, ‘‘Black Hole or Black Gold? The Impact of Oil and Gas Prices on Indonesia’s Public Finances,’’ World Bank Policy Research Working Paper WPS4718 (Washington, DC: World Bank, 2008).
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to allocate natural resource revenue shares quarterly, on an estimated basis, even if the treasury has not yet received the actual revenues itself. The regulation is a positive step forward. But many such regulations go unheeded in Indonesia. The proof will be seen in national budget implementation starting in 2009. The Ministry of Home Affairs is currently planning to revise national legislation that regulates subnational budgets. A useful reform here would be for the ministry to reduce restrictions on the execution of subnational expenditure budgets. Some leeway should be given to subnational governments to spend in limited amounts greater than approved budget ceilings, or allow departments to shift budgets across spending categories, without having to obtain official approval from their parliaments. Furthermore, it would be helpful for the central government to provide more guidance to subnationals on the development of formal reserve accounts and assist in building capacity in the use of such funds. Moreover, the central government needs to redouble its efforts to build capacity at the subnational level in the areas of capital project planning, design, and implementation. Both actions should help subnationals to spend more of the resources available to them. But just increasing subnational spending will not be sufficient, of course. Subnational governments need assistance in spending more efficiently, as well. There is considerable evidence to suggest that inefficient subnational spending in Indonesia is at least as problematic as the lack of spending.37 Finally, the existence of significant subnational reserves may, of course, be indicative of broader governance concerns related to citizen demand for public services and/or government accountability for the provision of services, as well. That is, unspent fiscal resources may be interpreted as foregone public service delivery; and the latter, in turn, may be a function, at least in part, of fragile demand for services or, perhaps, underdeveloped accountability mechanisms through which to channel existing service demands. To the extent that this is the case, then subnational reserves are representative of more a complex set of problems, requiring longer term solutions of a more political nature. The analysis of the political economy aspects of subnational reserves in Indonesia is a potentially useful avenue of further research. NOTES The authors would like to thank Bank of Indonesia and Ministry of Finance officials for access to data used in the analysis and Wolfgang Fengler, Sonia Hammam, and Bill Wallace for comments on an earlier version of the paper. The research reported on in this paper was funded in part by a grant from Britain’s Department for International Development (DFID TF 070582).
37. Blane D. Lewis and Daan Pattinasarany, ‘‘The Cost of Public Primary Education in Indonesia: Do Schools Need More Money?’’ Working Paper (Jakarta: Decentralization Support Facility, World Bank, 2008).
Lewis and Oosterman / Impact of Decentralization on Subnational Government Fiscal Slack 47