Intergovernmental relations and the dynamics of local revenue mobilisation in a decentralised Indonesia

Rifaldi, Bella (2024). Intergovernmental relations and the dynamics of local revenue mobilisation in a decentralised Indonesia. University of Birmingham. Ph.D.

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Abstract

This thesis investigates how local revenue mobilisation is affected by the institutional arrangements governing decentralisation through a case study of Indonesian local government. It establishes the expectations and scope of local autonomy in the country through analysis of the rules and regulations affecting decentralisation and intergovernmental relations. It then examines specifically the impact of the devolution of revenue-raising powers on local own-source revenue in the 2011-2013 period as an example of increased local autonomy. Lastly, through interviews of central officials and local officials in two individual municipal case studies, the study reveals the factors and considerations which shape the use of new revenue-raising powers alongside other existing sources of local revenue such as intergovernmental transfers.

The findings show evidence of the impact of devolution of property tax on local revenue mobilisation in Indonesia and how contextual and institutional factors affect the local revenue mobilisation process. Changes in the institutional arrangements governing decentralisation in Indonesia from the year 1999 to 2015 provided local governments with an increased autonomy over policy making and financial resources, yet those changes still left a room for central control in the name of maintaining the unitary state and promoting the centrally-led development planning agenda. Within these institutional arrangements, the devolution of property tax in the 2011-2013 period increased the proportion of own-source revenues and average local own-source revenues per capita in the municipalities implementing the reform, despite an increase of central transfers in the same period. Evidence from the interviews showed that despite the positive effect of devolution on revenue mobilisation the rules regarding the allocation and use of central transfers have lessened the impact of that below its maximum potential. Local revenue mobilisation is conditioned by the extent of mismatch between activities driven by local preferences and activities promoted by central policy makers.

The findings of this thesis contribute to the literature by showing that in this case study of Indonesia, the devolution of revenue-raising powers increased local revenue mobilisation although this increase was limited by the rules governing intergovernmental transfers and central-local relations in decision making processes. In particular, central control over human resources reduced the impact of devolution of property tax, which show that local revenue mobilisation is also lessened by the lack of autonomy municipalities work under in decision making concerning human resources. The thesis also shows a nuanced picture about local autonomy in Indonesia, where there is room for local decision makers to influence central government’s decisions regarding the use of central transfers. The results from this study provide support for a more detailed analysis in institutional arrangements governing decentralisation in future studies to better understand the scope of local autonomy which can affect decentralisation outcomes.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

Supervisor(s):