General Purpose Central-provincial-local Transfers (DAU) in Indonesia : From Gap Filling to Ensuring Fair Access to Essential Public Services for All

Indonesia has come a long way from centralized governance to decentralized local governance, and today Indonesia ranks among the most decentralized developing countries. The Government of Indonesia is revisiting all aspects of local governance to make appropriate legal and institutional adjustments based on lessons leaarned during the past decade. An important area of this re-examination and possible reform is the central financing of subnational expenditures. The system of intergovernmental finance represents one of the most complex systems ever implemented by any government in the world. The system is primarily focused on a gap-filling approach to provincial-local finance in an objective manner to ensure revenue adequacy and local autonomy but without accountability to local residents for service delivery performance. This paper takes a closer look at Dana Alokasi Umum -- the most dominant program of unconditional central transfers to finance provincial-local government expenditures in Indonesia. The paper also presents illustrative simulations of alternative programs and compares these with the existing Dana Alokasi Umum allocations. The paper concludes that super complexity leads to lack of transparency, inequity, and uncertainty in allocation. Simpler alternatives are available that have the potential to address autonomy and equity objectives while also enhancing efficiency and citizen-based accountability. Such alternatives would represent a move away from the complex gap-filling approach to simple output-based transfers to finance operating expenditures. Capital grants would deal with infrastructure deficiencies. And the alternatives would institute fiscal capacity equalization as a residual program with an explicit standard to ensure that all local jurisdictions have adequate means to deliver reasonably comparable levels of public services at reasonably comparable levels of tax burdens across the country.

Bibliographic Details

Main Authors:	Qibthiyyah, Riatu, Shah, Anwar, Dita, Astrid
Language:	English
Published:	World Bank, Washington, DC 2012-06
Subjects:	ACCOUNTABILITY STRUCTURE, ACCOUNTING, ADB, ALLOCATION OF RESOURCES, ALLOCATION OF TRANSFERS, BANK POLICY, CAPITAL GRANT, CAPITAL GRANTS, CAPITAL MARKET, CENTRAL GOVERNMENT, CENTRAL REVENUES, CENTRAL TRANSFERS, CITIES, CITIZENS, CIVIL SERVICE, COEFFICIENT OF VARIATION, COMPARATIVE PERSPECTIVES, CONSENSUS, CONSTITUTION, CONSTITUTIONAL COURT, DECENTRALIZATION, DECISION-MAKING, DEMOCRATIC LOCAL GOVERNANCE, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPMENT BANK, DEVELOPMENT EXPENDITURES, DIFFERENTIALS, DISTRICT, DISTRICT GOVERNMENT, DISTRICTS, ECONOMIC GROWTH, EMPLOYMENT, ENVIRONMENTAL TAXES, EQUALIZATION, EQUITY OBJECTIVES, EXPENDITURE NEED, EXPENDITURE NEEDS, FEDERAL GOVERNMENT, FEDERALISM, FINANCES, FISCAL CAPACITIES, FISCAL CAPACITY, FISCAL DECENTRALIZATION, FISCAL EQUALIZATION, FISCAL EQUITY, FISCAL FEDERALISM, FISCAL GAP, FISCAL GAPS, FISCAL SURPLUS, FISCAL TRANSFERS, GAMBLING, GOVERNMENT AGENCIES, GOVERNORS, HOUSING, HUMAN DEVELOPMENT, INCOME TAXES, INFLATION, INSTITUTIONAL ARRANGEMENTS, INTERGOVERNMENTAL FINANCE, INTERGOVERNMENTAL FISCAL RELATIONS, INTERGOVERNMENTAL FISCAL TRANSFERS, INTERGOVERNMENTAL TRANSFER, INTERGOVERNMENTAL TRANSFERS, INTERNATIONAL BANK, LACK OF TRANSPARENCY, LARGE CITIES, LEVEL PLAYING FIELD, LOCAL AUTONOMY, LOCAL EXPENDITURES, LOCAL FINANCE, LOCAL GOVERNMENT, LOCAL GOVERNMENT ACCOUNTABILITY, LOCAL GOVERNMENT AUTONOMY, LOCAL GOVERNMENT EXPENDITURE, LOCAL GOVERNMENT EXPENDITURES, LOCAL GOVERNMENT ORGANIZATION, LOCAL GOVERNMENT SPENDING, LOCAL GOVERNMENTS, LOCAL PUBLIC SERVICES, LOCAL TAX, MARKET ACCESS, MAYORS, METROPOLITAN AREAS, MINISTERS, MINISTRY OF FINANCE, MINISTRY OF INTERIOR, MUNICIPALITIES, NATIONAL POLICY, NATIONS, NATURAL RESOURCES, OPERATING EXPENDITURES, OWN SOURCE REVENUE, PERSONAL INCOME, PERSONAL INCOME TAXES, POLICY MAKERS, POOL OF FUNDS, PROPERTY TAXES, PROVINCE, PROVINCES, PROVINCIAL GOVERNMENTS, PUBLIC, PUBLIC ECONOMICS, PUBLIC EXPENDITURE, PUBLIC FINANCE, PUBLIC FINANCIAL MANAGEMENT, PUBLIC HOUSING, PUBLIC MANAGEMENT, PUBLIC POLICY, PUBLIC SECTOR, PUBLIC SECTOR WAGES, PUBLIC SERVICE, PURCHASING POWER, REDISTRIBUTION, REDISTRIBUTION OF INCOME, REDISTRIBUTIVE IMPACT, RESOURCE SHARING, RETURN, RETURNS, REVENUE ADEQUACY, REVENUE AFTER TRANSFER, REVENUE CAPACITY, REVENUE COLLECTION, REVENUE SHARING MECHANISM, REVENUE SOURCES, ROADS, SMALL TOWN, SOCIAL PROTECTION, SOCIAL WELFARE, STATE GOVERNMENTS, SUB-NATIONAL, SUB-NATIONAL EXPENDITURES, SUB-NATIONAL GOVERNMENT, SUB-NATIONAL GOVERNMENTS, SUBNATIONAL, SUBNATIONAL EXPENDITURES, TAX, TAX ADMINISTRATION, TAX BASE, TAX BURDENS, TAX DECENTRALIZATION, TAX EFFORT, TAX EFFORTS, TAX RATE, TAX REVENUE, TAX REVENUE SHARING, TAX SHARING, TAX SHARING SYSTEM, TAX SYSTEM, TECHNICAL ASSISTANCE, TOTAL EXPENDITURES, TRANSPARENCY, TREASURIES, UPPER HOUSE, VILLAGES, VOTING,
Online Access:	http://documents.worldbank.org/curated/en/2012/06/16338364/general-purpose-central-provincial-local-transfers-dau-indonesia-gap-filling-ensuring-fair-access-essential-public-services-all https://hdl.handle.net/10986/9346
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