Investing in Indonesia's education : allocation, equity, and efficiency of public expenditures

What are the current trends and main characteristics of public education spending in Indonesia? Is education spending insufficient? Are expenditures in education efficient and equitable? This study reports the first account of Indonesia's aggregated (national and sub-national) spending on education, as well as the economic composition of education spending and its breakdown by programs. It presents estimations of the expected (average) level of education spending for a country with its economic and social characteristics. This analysis sheds light on the efficiency and equity of education spending by presenting social rates of return by level of education, by assessing the adequacy of current teacher earnings relative to other paid workers and the distribution of teachers across urban, rural, and remote regions, and by identifying the main determinants of education enrollment. It concludes that the current challenges in Indonesia are no longer defined by the need of additional spending, but rather the need to improve the quality of education services, and to improve the efficiency of education expenditures by re-allocating teachers to undersupplied regions and re-adjusting the spending mix within and between education programs for future additional spending in the sector. The study finds that poverty and student-aged labor are also significant constraints to education enrollment, stressing the importance of policies aimed at addressing demand-side factors.Education For All,Primary Education,Tertiary Education,Teaching and Learning,

Decentralization and the Composition of Public Expenditures

DRMI Working Paper SeriesThe series is intended to convey the preliminary results of [DRMI] ongoing research. The research described in these papers is preliminary and has not completed the usual review process for Institute publications. We welcome feedback from readers and encourage you to convey your comments and criticisms directly to the authors

Economic effects of apportionment formula changes : results from a panel of corporate income tax returns

To date empirical studies of the economic effects of changes in state corporate income tax apportionment policies have used only highly aggregated, state-level data. This study uses data at the individual firm level, which is provided by a population of corporate income tax returns from the State of Georgia over the period 1992 – 2002, to evaluate the economic development and revenue aspects of increasing the sales factor weight (and uniformly lowering the weights on payroll and property) in state corporate income tax apportionment formulas.  Looking at the firm level, we find elasticities sufficiently large to lead to substantial impact on local sales ( - 6.5 percent), payroll (2.0 percent) and property (2.1 percent) following a move to double-weighted sales.  For the average firm, increases in Georgia payroll and property were $37,110 and$190,829, respectively, while the decrease in Georgia sales for the average firm was $634,367.  Based on 1994 figures (the year prior to double-weighting), this amounts to state-wide increases in payroll and property of$0.6 billion and $3.1 billion, respectively, and a decrease in gross receipts of approximately$10.4 billion.Corporations - Taxation ; Corporations - Taxation - Georgia

Does Decentralization Influence the Functional Composition of Public Expenditures?

DRMI Working Paper SeriesThe series is intended to convey the preliminary results of [DRMI] ongoing research. The research described in these papers is preliminary and has not completed the usual review process for Institute publications. We welcome feedback from readers and encourage you to convey your comments and criticisms directly to the authors

Decentralized Governance and Preferences for Public Goods

The article of record may be found at ||https://mpra.ub.uni-muenchen.de/42459/The theoretical and policy literature on decentralization has long asserted since Oates (1972) that decentralized governance increases allocative efficiency in the public sector. But, despite the colossal growth in the literature on decentralization and fiscally decentralized systems in the real world over the past four decades, this hypothesis has gone untested, largely because of the difficulties of deriving measures of allocative efficiency. In this paper we offer an indirect test of the allocative efficiency hypothesis by examining how decentralized governance affects the expression of preferences for public goods. Specifically, we examine the relationship between fiscal decentralization and the functional composition of public expenditures. Using a distance-sensitive representative agent model, we hypothesize that higher levels of fiscal decentralization induce agents to demand increased production of publicly provided private goods. We test this hypothesis using an unbalanced panel data set of 59 developed and developing countries covering a 30-year period. We find that expenditure decentralization positively and significantly influences the share of health and education expenditures in the consolidated government budgets; this finding is robust across multiple estimators. Decentralized governance thus appears to alter the composition of public expenditures towards publicly provided private goods

Fiscal Decentralization and the Functional Composition of Public Expenditures

We examine the relationship between fiscal decentralization and the functional composition of public expenditures. Using a distance-sensitive representative agent model, we hypothesize that higher levels of fiscal decentralization induce agents to demand increased production of publicly provided private goods. We test this hypothesis using an unbalanced panel data set of 45 developed and developing countries covering a 28-year period. We find strong evidence that decentralization increases the share of education and health expenditures in total government expenditures. We note that the influence of decentralization on the composition of public expenditures may be greater in developing countries relative to industrialized countries

Fiscal Decentralization and The Functional Composition of Public Expenditures

This study examines the relationship between fiscal decentralization and the functional composition of public expenditures. We develop a theoretical model based on a distance-sensitive representative agent model, some applications of the median-voter theorem, and the Tiebout choice model. In our model, higher levels of fiscal decentralization lead indiviuals to demand higher amounts of publicly provided private goods. We empirically test this hypothesis by employing several econometric models on an unbalanced panel data set of 45, developed and developing countries over a 28-year period. The empirical models used in this study improve upon previous empirical studies of expenditure composition by using up-to-date data and the most current estimation techniques for fractional data. We obtain strong evidence that fiscal decentralization increases the share of education and health expenditures over total expenditures. Most of our estimates reveal no statistically significant evidence that the effects of decentralization may differ between developing and industrialized countries. However, for one model we find evidence that the effect of decentralization on the composition of public expenditures is greater in developing countries than in industrialized countries.Fiscal Decentralization, and Functional Composition of Public Expenditures