Abstract
The main problem of this research was to analyze the local government response to the intergovernmental transfers. The main objective of this research was to get a deeper analytical results about the contribution of the intergovernmental transfers on the local own revenue, operating and capital expenditures in the case of district and municipality governments in Indonesia over the period of 1988-2003. Using the simultaneous equation system, we found asymmetric response. We concluded that the intergovernmental transfers stimulate the increase of the local government expenditures larger than that of the local own revenue. Furthermore, the decrase in intergovernmental transfers stimulate the decrease of the local government expenditures not larger than that of the local own revenue. It seems that the dependency of local government onto the intergovernmental transfers will be worse. The local governments in the long run tend to use the external borrowing to finance the increase of their expenditures. Those results above suggest that the distribution of intergovernmental transfers among regions should consider the local tax effort, and the services minimum standard plays an important role to achieve the expenditures efficiency.
The main problem of this research was to analyze the local government response to the intergovernmental transfers. The main objective of this research was to get a deeper analytical results about the contribution of the intergovernmental transfers on the local own revenue, operating and capital expenditures in the case of district and municipality governments in Indonesia over the period of 1988-2003. Using the simultaneous equation system, we found asymmetric response. We concluded that the intergovernmental transfers stimulate the increase of the local government expenditures larger than that of the local own revenue. Furthermore, the decrase in intergovernmental transfers stimulate the decrease of the local government expenditures not larger than that of the local own revenue. It seems that the dependency of local government onto the intergovernmental transfers will be worse. The local governments in the long run tend to use the external borrowing to finance the increase of their expenditures. Those results above suggest that the distribution of intergovernmental transfers among regions should consider the local tax effort, and the services minimum standard plays an important role to achieve the expenditures efficiency.
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