Decentralization and Fiscal Autonomy at the Subnational Level in Indonesia

Abstract

Abstract:This article revisits the issue of fiscal autonomy at the subnational level following the implementation of Indonesia’s 2001 decentralization reforms. Its main research question is whether the reforms allow a bigger space for local governments to generate their own revenue and fund their initiatives. To this end, the article analyses the size and proportion of intergovernmental transfers from the centre to local and provincial governments since the start of decentralization. It then assesses the funds that subnational governments have to finance their own programmes and initiatives, as well as the proportion of revenue that these governments raise themselves. The study argues that, despite changes in legislation, responsibility for expenditure has been consistently handed to local and, to a lesser extent, provincial governments. However, this has not translated into greater autonomy for them to establish and finance their own initiatives. Conversely, local governments have been pushing for more control over their revenue by introducing various taxes and user charges. This has resulted in a slight increase in the proportion of revenue raised at the local level.