+
Province-Local Taxes
Distribution in Indonesia
Riatu M. Qibthiyyah
LPEM FEUI, 29 April 2014
+
Outline

Background

Description and Reviews

Estimation Results

Conclusions
+
Background

One sided fiscal decentralization, low emphasis on revenue
decentralization. In the next development stage, will Indonesia still
emphasizes on expenditure decentralization and relies heavily on
transfers? Intergovernmental Transfers are perceived as
entitlement.

Revenue decentralization is to improve region revenue autonomy,
i.e. provincial and or local taxes shares. Revenue autonomy:
percentage share of (Province or Local) taxes revenues from total
revenues. Would there be differences among regions in terms of
revenues autonomy? How is the variability of revenues autonomy
among regions.
+
Background
+ Local Taxes as %
of Total Revenues:
Mean and
Coefficient
Variation
Correlation (2002): 0.14
Correlation (2012): - 0.15
Province with low average of
local governments tax share
may have high variation of
local governments tax share
+ Local Taxes as %
of Total Revenues:
Mean and
Coefficient
Variation
In 2002-2012, some regions
(73% of districts in
comparison to 29% of cities)
have a reduced local taxes
share (as % of Total
Revenues).
On average, tax share grew
faster in cities than in districts.
+ Taxes as % of Total Revenues:
Provinces, Districts, and Cities
Coefficient
Variation (CV)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Province
Cities
Districts
57.42
59.88
57.88
57.27
64.68
66.03
47.23
52.84
53.37
53.28
48.83
96.44
100.19
99.55
113.23
106.21
106.79
144.18
106.54
104.76
119.49
114.73
212.08
191.47
192.14
201.68
249.44
264.52
186.06
230.12
283.95
252.23
225.03
+
Distribution of Tax (as % Total
Revenues): Provinces (P), Cities
(C), and Districts (D).
Jumlah
P 2002
(%)
C 2002
(%)
<10%
5 (16.7)
10 - <20%
D 2002
(%)
P 2012
(%)
C 2012
(%)
D 2012
(%)
70 (89.7) 245 (98.4)
4 (12.5)
70 (76.1)
369 (96.1)
9 (30.0)
8 (10.3)
3 (1.2)
4 (12.5)
13 (14.1)
12 (3.1)
20 - <30%
5 (16.7)
0
0
4 (15.6)
8 (8.7)
2 (0.5)
30 - <40%
7 (23.3)
0
0
5 (28.1)
1 (1.1)
0
40 - <50%
3 (10.0)
0
0
9 (12.5)
0
0
50% and up
1 (3.3)
0
1 (0.4)
4 (18.8)
0
1 (0.3)
Total
30 (100)
78 (100)
249 (100)
32 (100) 92 (100)
384 (100)
+
Reviews

One of the advantages of decentralization is the efficiency of
Tiebout jurisdictions, in which the different level of local
taxes represent different or various type of expenditure
programs (that suited local preferences).

Scully (1991) testing Tiebout Hypothesis on the case of US
State Taxes and found the convergence of taxes revenues.
Rhode and Strumpf (2003) using per capita
taxes/revenues/spending on US state level and find
reduction in heterogeneity of taxes and expenditures.

Tiebout (1956) hypothesis: divergence of local taxes
represents variability in taxes-expenditures mix across
regions. Based onβconvergence model.
+
Estimation Result (1): Cities
+
Estimation Result (2): Cities
+
Estimation Result (1): Districts
+
Estimation Result (2): Districts
+
Estimation Result: Provinces
+
Conclusion

Tax share tends not to converge among cities. There is no
evidence of slower rate of tax share improvement among
cities with initial high tax shares.

Tax share seems to converge among districts which implies
that there is a tendency districts with higher tax share
experienced slower growth of tax share over the years.

Initially high province tax share may associate with higher
growth of districts tax share.
+
Recap: Plausible Policy
Implications

One of the advantage of decentralization is the presence of
region competition by provision of a mix of taxes and
expenditures. Revenue decentralization is potentially
enhanced in cities type of government. The findings may
support the context of heterogeneous jurisdictions -- Tiebout
case for cities.

More coordination in taxes administration between province
and local governments, especially in the case of districts. It is
possible that externality of efficient tax administration in the
province level can be exploited to improve districts tax
administration.