Planning Consistency and the Political Budget Cycle in Indonesia

This study aims to find empirical evidence of the relationship between planning and the practices associated with political budget cycles in Indonesia, with reference to the simultaneous regional head elections held in 2017 and 2018. A fixed-effect method using least-square dummy variables analyzes the role of planning in the relationship between local-government spending and political budget cycle behaviors. The results indicate that consistency between planning and budgeting can control the discretion applied by regional heads to increase and decrease budget expenditure in the two years before an election, one year before an election and in the election year itself. The magnitude of these reductions or increases differs between types of expenditure. The association between planning and the political budget cycle is significant in the two years before an election for primary expenditure allocations and in a year before an election for allocations of capital expenditure, social assistance, and grants and subsidies.

Mapping of budget stress in Indonesia: Consequence on budget implementation

The phenomenon of a budget deficit in local governments at the provincial, regency, and city levels shows that there is budget stress. Budget stress is a regional fiscal condition reflected in the lower revenue budget, while regional expenditure is getting higher. The consequence of budget stress is low budget implementation, and it reduces the quality of services to the public. This study aims to map the regions experiencing budget stress at the local government levels. Furthermore, this study examines and analyzes the consequences of budgetary stress on budget implementation. The research sample used local governments at the provincial, regency, city levels throughout Indonesia during 2016-2020. This study uses Ordinary Least Square (OLS) to test the research hypothesis. This study groups the five regions with the highest budget stress during 2016-2020. The results of this study can contribute to the theory, methodology, and implementation related to the budget. The theory's contribution is that the political budget cycle can maintain government performance through various efforts to reduce budget stress. This study also found that budget stress can reduce budget implementation. Therefore, the government needs to pay attention to indicators of budget stress.

Political Budget Cycle, Tax Collection, and Yardstick Competition

This paper exploits the political cycle of Italian municipalities to test for the presence of strategic interactions in the collection of local taxation. The revenue from the personal income tax surcharge—a tax tool of low salience—is (positively) plagued by political manipulation and is found to be a strategic complement, but only when mayors run for re-election, a finding consistent with the yardstick competition hypothesis. More salient fiscal tools, such as property tax and user fees and charges, are also (negatively) affected by budget cycles, but they do not appear to be spatially correlated.

Entitlement programmes for garnering votes? The impact of local elections on targeted social protection in decentralised Indonesia

Purpose The purpose of this paper is to find the relationship between local direct elections and the change in social spending, controlling for GDP per capita, revenues and wide-range socio-welfare indicators at the regional level. Design/methodology/approach This research uses a model of time-series cross-sectional panel data set for 33 provinces in Indonesia from 2001 to 2012. Findings The main finding of this research is that the political budget cycle does exist in Indonesia. Incumbents responded to the direct elections more sensitively rather than to other variables in the model. The most important variables that are significant in the model are not only direct election but also inter-governmental grants. Interestingly, the local economy (as measured by GDP per capita) does not clearly exhibit a meaningful impact. Research limitations/implications Although the importance of decentralisation in Indonesia is actually at the regency level, obtaining the data is really challenging. Therefore the exercise on this paper is currently limited only for the provincial level. Practical implications This finding conveys the message that there is large room for improvement in inter-governmental transfer formulation, more importantly to the regions where they still entail significant budget support from central government. In addition, transfers during specific periods such as elections need to be modified to avoid the misappropriation of local budget and to mitigate the adverse impact of PBC. The formulation of inter-governmental transfers is pivotal in reducing over-dependence to the central government funding and to ensure the effectiveness of budget devolved at the local level. Originality/value To the author’s understanding, the paper is the first to discuss the presence of the political budget cycle on social protection programs in Indonesia. The expected contribution of the current work is twofold: Firstly, the author used a recent data set hosted by the World Bank (INDO-DAPOER). Secondly, the findings are relevant to the discussion within the sphere of development studies and political science.

Local Public Investment Drivers in Peru

Around half of Peru’s public investment is made by local governments. Through the estimation of a dynamic panel data model for 1796 local governments between 2010 and 2018, we find that the most important drivers for local public investment are: (i) availability of funding sources, especially those associated to non-renewable natural resource revenues; (ii) variables associated with each local government’s capacity to plan, budget and execute public investment; and (iii) political budget cycle effects, especially during the year following local elections. Furthermore, we extend our analysis by differentiating between local governments with reelected and non-reelected authorities, and by grouping local governments according to their economic size. Most of our results are shown to be robust across different specifications. Results from this paper can be used as a starting point to design mechanisms that make public investment more stable and predictable in a context where reelection banning can further deepen public investment’s fall.