Publication: Autonomy with Equity and Accountability : Toward a More Transparent, Objective, Predictable and Simpler (TOPS) System of Central Financing of Provincial-Local Expenditures in Indonesia
Date
2012-03
ISSN
Published
2012-03
Author(s)
Abstract
During the past decade, Indonesia has
transformed itself from centralized governance to
decentralized local governance. Local governments were given
extensive expenditure responsibilities while keeping the tax
system centralized. To finance decentralized
provincial-local expenditures, Indonesia implemented a new
system of intergovernmental finance. This paper provides a
review of the equity and efficiency implications of the
current system of central-provincial-local transfers. It
finds that 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 to ensure revenue adequacy and local autonomy but
without accountability to local residents for service
delivery performance. This is done through a great degree of
academic rigor using highly complex procedures. The
complexity leads to a lack of transparency, inequity and
uncertainty in allocation as well as creating incentives for
jurisdictional fragmentation and reducing own-tax effort.
Simpler alternatives are available that have the potential
to address equity objectives while also enhancing efficiency
and citizen-based accountability. Such alternatives would
represent a move away from complex gap filling and special
allocation approaches to simple, output based transfers to
finance operating expenditures. These would be complemented
by capital grants to deal with infrastructure deficiencies,
and 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. The paper argues that such an
alternative system of intergoveernmental finance would
preserve autonomy, while enhancing equity, simplicity,
objectivity, transparency and accountability.
Citation
“Shah, Anwar. 2012. Autonomy with Equity and Accountability : Toward a More Transparent, Objective, Predictable and Simpler (TOPS) System of Central Financing of Provincial-Local Expenditures in Indonesia. Policy Research Working Paper;No. 6004. © World Bank, Washington, DC. http://hdl.handle.net/10986/19876 License: CC BY 3.0 IGO.”
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