Qibthiyyah, RiatuShah, AnwarDita, Astrid2012-06-292012-06-292012-06https://hdl.handle.net/10986/9346Indonesia 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.CC BY 3.0 IGOACCOUNTABILITY STRUCTUREACCOUNTINGADBALLOCATION OF RESOURCESALLOCATION OF TRANSFERSBANK POLICYCAPITAL GRANTCAPITAL GRANTSCAPITAL MARKETCENTRAL GOVERNMENTCENTRAL REVENUESCENTRAL TRANSFERSCITIESCITIZENSCIVIL SERVICECOEFFICIENT OF VARIATIONCOMPARATIVE PERSPECTIVESCONSENSUSCONSTITUTIONCONSTITUTIONAL COURTDECENTRALIZATIONDECISION-MAKINGDEMOCRATIC LOCAL GOVERNANCEDEVELOPING COUNTRIESDEVELOPING COUNTRYDEVELOPMENT BANKDEVELOPMENT EXPENDITURESDIFFERENTIALSDISTRICTDISTRICT GOVERNMENTDISTRICTSECONOMIC GROWTHEMPLOYMENTENVIRONMENTAL TAXESEQUALIZATIONEQUITY OBJECTIVESEXPENDITURE NEEDEXPENDITURE NEEDSFEDERAL GOVERNMENTFEDERALISMFINANCESFISCAL CAPACITIESFISCAL CAPACITYFISCAL DECENTRALIZATIONFISCAL EQUALIZATIONFISCAL EQUITYFISCAL FEDERALISMFISCAL GAPFISCAL GAPSFISCAL SURPLUSFISCAL TRANSFERSGAMBLINGGOVERNMENT AGENCIESGOVERNORSHOUSINGHUMAN DEVELOPMENTINCOME TAXESINFLATIONINSTITUTIONAL ARRANGEMENTSINTERGOVERNMENTAL FINANCEINTERGOVERNMENTAL FISCAL RELATIONSINTERGOVERNMENTAL FISCAL TRANSFERSINTERGOVERNMENTAL TRANSFERINTERGOVERNMENTAL TRANSFERSINTERNATIONAL BANKLACK OF TRANSPARENCYLARGE CITIESLEVEL PLAYING FIELDLOCAL AUTONOMYLOCAL EXPENDITURESLOCAL FINANCELOCAL GOVERNMENTLOCAL GOVERNMENT ACCOUNTABILITYLOCAL GOVERNMENT AUTONOMYLOCAL GOVERNMENT EXPENDITURELOCAL GOVERNMENT EXPENDITURESLOCAL GOVERNMENT ORGANIZATIONLOCAL GOVERNMENT SPENDINGLOCAL GOVERNMENTSLOCAL PUBLIC SERVICESLOCAL TAXMARKET ACCESSMAYORSMETROPOLITAN AREASMINISTERSMINISTRY OF FINANCEMINISTRY OF INTERIORMUNICIPALITIESNATIONAL POLICYNATIONSNATURAL RESOURCESOPERATING EXPENDITURESOWN SOURCE REVENUEPERSONAL INCOMEPERSONAL INCOME TAXESPOLICY MAKERSPOOL OF FUNDSPROPERTY TAXESPROVINCEPROVINCESPROVINCIAL GOVERNMENTSPUBLICPUBLIC ECONOMICSPUBLIC EXPENDITUREPUBLIC FINANCEPUBLIC FINANCIAL MANAGEMENTPUBLIC HOUSINGPUBLIC MANAGEMENTPUBLIC POLICYPUBLIC SECTORPUBLIC SECTOR WAGESPUBLIC SERVICEPURCHASING POWERREDISTRIBUTIONREDISTRIBUTION OF INCOMEREDISTRIBUTIVE IMPACTRESOURCE SHARINGRETURNRETURNSREVENUE ADEQUACYREVENUE AFTER TRANSFERREVENUE CAPACITYREVENUE COLLECTIONREVENUE SHARING MECHANISMREVENUE SOURCESROADSSMALL TOWNSOCIAL PROTECTIONSOCIAL WELFARESTATE GOVERNMENTSSUB-NATIONALSUB-NATIONAL EXPENDITURESSUB-NATIONAL GOVERNMENTSUB-NATIONAL GOVERNMENTSSUBNATIONALSUBNATIONAL EXPENDITURESTAXTAX ADMINISTRATIONTAX BASETAX BURDENSTAX DECENTRALIZATIONTAX EFFORTTAX EFFORTSTAX RATETAX REVENUETAX REVENUE SHARINGTAX SHARINGTAX SHARING SYSTEMTAX SYSTEMTECHNICAL ASSISTANCETOTAL EXPENDITURESTRANSPARENCYTREASURIESUPPER HOUSEVILLAGESVOTINGWorld Bank10.1596/1813-9450-6075