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The Indonesian government has devolved significant expenditure authority to sub-national units since 2001. New sub-national government expenditure assignments have been paid for by a substantial increase in intergovernmental transfers to lower levels of government. The center has decided against devolving any significant new tax authority to the regions, at least for the time being. This note examines some fundamental issues related to these unspent funds. The paper has two particular objectives. First, the paper describes the basic features of sub-national government surplus and reserves since decentralization, including their size and spatial distribution. Second, it seeks to explain the observed variation in surplus across sub-national governments, according to some standard hypotheses. The paper proceeds as follows. First, some basic information regarding the buildup and geographic distribution of sub-national reserves is offered. Second, the methodological approach to the study of sub-national government surpluses is detailed. Third, the results of the econometric examination are presented and discussed. Finally, the note closes with a summary of the main findings and a proposal for some additional research that might be useful in the continuing development of central policy in this area.

Commercial Banks --- Corruption --- Decentralization --- Fiscal & Monetary Policy --- Governance --- Local Government --- Macroeconomics and Economic Growth --- Public Sector Development --- Public Spending --- Reserve Funds --- Revenue Sharing --- Subnational Governments --- Taxation & Subsidies --- Urban Areas --- Urban Development --- Urban Economics --- Urbanization

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This paper provides background for the Government of Indonesia as it considers if and how to introduce more robust local government performance incentives into the intergovernmental fiscal framework. The next section briefly examines the forces that have driven the recent national wave of interest in improving local government performance. This is followed by a review of the relatively limited set of local government performance incentives currently in force in Indonesia. The fourth section provides a conceptual overview of how to think about the possible expansion of local government incentive programs, outlining the potential role(s) of such programs in general and the key issues involved in designing and implementing them. The fifth section tentatively considers a number of options for additional local government incentives in Indonesia that the central government may wish to consider pursuing. The paper concludes with an outline of next steps for moving forward with the possible development of more purposeful and meaningful performance incentives in Indonesia's intergovernmental fiscal framework.

Accounting --- Capacity Building --- Capital Expenditures --- Debt Restructuring --- Decentralization --- Decision Making --- Developing Countries --- Economic Development --- Expenditures --- Finance and Financial Sector Development --- Financial Management --- Governance --- Intergovernmental Relations --- Legal System --- Local Government --- Macroeconomics and Economic Growth --- Moral Hazard --- Public & Municipal Finance --- Public Sector --- Public Sector Development --- Reserve Funds --- Revenue Sharing --- Tax Administration --- Taxation & Subsidies --- Transparency

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• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)