Authors: Aan Zulyanto , SutyastieSumitroRemi , Bagdja Muljarijadi , Rd. Muhamad Purnagunawan
Year: 2019, Volume 28 No. 3
As with implementation of decentralization in Indonesia, the level of government fragmentation has increased rapidly. From 1999 to 2013, 220 new local goverments were formed, making territorial splits in Indonesia become one of the fastest and the largest in the world. However, the proliferation is driven more by political interests and thus inefficient. A number of evaluations showed the failures of the territorial splits policy in Indonesia. This study analyzed the effect of government fragmentation and fiscal decentralization on economic growth in Indonesia. The study uses panel data of 32 provinces in Indonesia from the period of 2001-2013. Using a fiscal decentralization model, this study does not find significant negative effect of fragmentation on economic growth. We still have a positive effect of fragmentation, as the previous literatures suggest that fragmentation brings about benefits for economic growth because it can promote competition and encourage government efficiency.The study also finds that fiscal decentralization has a significant positive effect on economic growth in Indonesia.
Keywords: Government Fragmentation· Fiscal Decentralization · Economic Growth
JEL Classification: H11. H72. H77