INTERGOVERNMENTAL TRANSFERS AND ASYMMETRIC EXPENDITURE ADJUSTMENT: EVIDENCE FROM INDONESIAN LOCAL GOVERNMENTS
DOI:
https://doi.org/10.18623/rvd.v23.7005Keywords:
Asymmetric Expenditure Adjustment, Dependency Fiscal, Inter-Bank Transfers Government, Finance Region, Fiscal Federalism, IndonesiaAbstract
This study examines whether local governments in Indonesia exhibit asymmetric expenditure adjustment in response to revenue changes and whether intergovernmental transfers are the primary driver of this behavior. Drawing on the perspectives of Second-Generation Fiscal Federalism and fiscal dependence, the study argues that expenditure responses vary by revenue source. Using panel data from 501 district and municipalitys in Indonesia during 2019–2024, the analysis employs a fixed-effects regression model. The results show that changes in revenue positively affect operational expenditure. More importantly, local governments exhibit asymmetric expenditure adjustment, with responses differing between periods of revenue growth and decline. Additional analyses reveal that this asymmetry is driven primarily by changes in intergovernmental transfers, whereas Local Own-Source Revenue (PAD) does not exhibit a similar effect. The findings further indicate that asymmetric expenditure adjustment is more pronounced among district governments than municipalities. This study extends the asymmetric expenditure adjustment literature to the public sector and highlights the role of fiscal dependence in shaping local government expenditure behavior. The findings suggest that strengthening local fiscal capacity may reduce vulnerability to fluctuations in central government transfers.
References
Acceleration of the Implementation of Refocusing and Reallocation of the 2021 Local Government Revenue and Expenditure Budget to Fund the Response to the 2019 Coronavirus Pandemic and Its Impacts, 1 (2021). https://djpk.kemenkeu.go.id/wp-content/uploads/2021/08/SEB-2_MK.07_2021.pdf
Anderson, M. C., Banker, R. D., & Janakiraman, S. N. (2003). Are Selling, General, and Administrative Costs “Sticky”? Journal of Accounting Research, 41(1), 47–63.
Anggriawan, T., & Prasetyia, F. (2025). Does Indonesian fiscal decentralization lead to local-central fiscal dependency? Jurnal Ilmiah Administrasi Publik, 11(1), 117–125.
Aspinall, E., & Berenschot, W. (2019). Democracy for sale: Elections, clientelism, and the state in Indonesia. Cornell University Press.
Badrudin, R., & Rimawan, M. (2022). The flypaper effect as political budget to achieve economic growth in Eastern Indonesia. International Journal of Trade and Global Markets, 15(3), 313. https://doi.org/10.1504/IJTGM.2022.124095
Bahl, R., & Bird, R. M. (2018). Fiscal decentralization and local finance in developing countries. Edward Elgar Publishing.
Banker, Rajiv D., & Byzalov, D. (2014). Asymmetric cost behavior. Journal of Management Accounting Research, 26(2), 43–79.
Bartolini, D., Maggi, C., & Roch, F. (2023). A New Fiscal Rule for Morocco?. (Vol. 61). Morocco’s Quest for Stronger and Inclusive Growth.
Berset, S., Huber, M., & Schelker, M. (2023). The fiscal response to revenue shocks. International Tax and Public Finance , 30, 814–848.
Bodman, P., & Hodge, A. (2010). What drives fiscal decentralization? Further assessing the role of revenue. Fiscal Studies, 31(3), 373–404. https://doi.org/10.1111/j.1475-5890.2010.00119.x
Canavire-Bacarreza, G., Heredia-Ortiz, E., Martinez-Vazquez, J., & Meyer, M. (2026). When Does Fiscal Decentralization Deliver Equity?
Day, J., De Biase, P., & Dougherty, S. (2022). The past and future of subnational fiscal rules: an analysis of fiscal rules over time.
Financial Relations between the Central Government and Local Governments, 1 (2022). file:///C:/Users/mp2cd/Downloads/UU%20Nomor%201%20Tahun%202022.pdf
Foged, S. K. (2022). Expenditure allocations during low and high fiscal stress: Priority setters and expenditure advocates in Danish municipalities, 2008–2015. Public Administration, 100(4), 1107–1124. https://doi.org/10.1111/padm.12759
Fuad, K., & Apriyanti, H. W. (2018). Implementasi Good University Governanc (GUG) Pada Perguruan Tinggi Islam Swasta di Jawa Tengah. Majalah Ilmiah Solusi, 16(1), 148–176.
Golden, J., Kohlbeck, M., & Rezaee, Z. (2020). Is Cost Stickiness Associated with Sustainability Factors? Advances in Management Accounting, 32, 35–73. https://doi.org/10.1108/s1474-787120200000032002
Hamidi, U. S., Puspita, D., Pahlevi, M., Raharja, M., Hadi, S., Latief Baroto, A., Permana, A. W., & Rahayu, W. T. (2021). Two decades of fiscal decentralization implementation in Indonesia editors: United States Agency for International Development Economic Growth Support Activity (USAID EGSA).
Jimenez, B. S. (2009). Fiscal stress and the allocation of expenditure responsibilities between state and local governments: An exploratory study. State and Local Government Review, 41(2), 81–94. https://doi.org/10.1177/0160323X0904100202
Lago-Peñas, S., Martinez-Vazquez, J., & Sacchi, A. (2022). Country performance during the Covid-19 pandemic: externalities, coordination, and the role of institutions. Economics of Governance, 23(1), 17–31. https://doi.org/10.1007/s10101-021-00263-w
Lewis, B. D. (2023). Indonesia’s new fiscal decentralisation law: A critical assessment. Bulletin of Indonesian Economic Studies, 59(1), 1–28. https://doi.org/10.1080/00074918.2023.2180838
Map of Local Fiscal Capacity, 1 (2023). file:///C:/Users/mp2cd/Downloads/2023pmkeuangan084.pdf
Muhtadi, B. (2019). Vote buying in Indonesia: The Mechanics of Electoral Bribery (E. Odareeva, Ed.). Springer Nature Singapore Pte Ltd.
Muzdalifah. (2020). Study of regional expenditure dependence on fund transfer: Case studies South Kalimantan Province. Advances in Economics, Business and Management Research, 144.
Nelson, A. A., & Balu, R. (2014). Local government responses to fiscal stress: Evidence from the public education sector. Public Administration Review, 74(5), 601–614. https://doi.org/10.1111/puar.12211
Nguyen, P. D., Vo, D. H., Ho, C. M., & Vo, A. T. (2019). Fiscal Decentralisation and Economic Growth across Provinces: New Evidence from Vietnam Using a Novel Measurement and Approach. Journal of Risk and Financial Management, 12(3). https://doi.org/10.3390/jrfm12030143
Oates, W. E. (1972). Fiscal federalism (1st ed.).
Okviyanto, C., & Syafitri, W. (2021). Socioeconomic and demographic characteristics as sources of social capital: A study of Indonesia. Journal of Socioeconomics and Development, 4(2), 212. https://doi.org/10.31328/jsed.v4i2.2570
Porto, A., Puig, J., & Vidal, B. (2026). How do local governments adjust to changes in equalization transfers? Evidence from Argentina. Public Finance Review, 54(2), 155–210. https://doi.org/10.1177/10911421251401621
Silver, C., Azis, I. J., & Schroeder, L. (2001). Intergovernmental transfers and decentralisation in Indonesia. Bulletin of Indonesian Economic Studies, 37(3), 345–362. https://doi.org/10.1080/00074910152669172
Suryawati, D., Rohman, H., Anwar, Maulana, M. I., Handika, Y. R., Hanim, A. N., Muluk, M. R. K., & Rochman, F. (2026). Adaptive governance in fiscal decentralization: Insight from institutional reform in Banyuwangi Regency, Indonesia. Social Sciences and Humanities Open, 13. https://doi.org/10.1016/j.ssaho.2026.102606
Weingast, B. R. (2009). Second generation fiscal federalism: The implications of fiscal incentives. Journal of Urban Economics, 65(3), 279–293. https://doi.org/10.1016/j.jue.2008.12.005
Weingast, B. R. (2014). Second generation fiscal federalism: Political aspects of decentralization and economic development. World Development, 53, 14–25. https://doi.org/10.1016/j.worlddev.2013.01.003
Downloads
Published
How to Cite
Issue
Section
License
I (we) submit this article which is original and unpublished, of my (our) own authorship, to the evaluation of the Veredas do Direito Journal, and agree that the related copyrights will become exclusive property of the Journal, being prohibited any partial or total copy in any other part or other printed or online communication vehicle dissociated from the Veredas do Direito Journal, without the necessary and prior authorization that should be requested in writing to Editor in Chief. I (we) also declare that there is no conflict of interest between the articles theme, the author (s) and enterprises, institutions or individuals.
I (we) recognize that the Veredas do Direito Journal is licensed under a CREATIVE COMMONS LICENSE.
Licença Creative Commons Attribution 3.0
