Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: The impact of asymmetric fiscal decentralization on education and health outcomes: Evidence from Papua Province, Indonesia
Issue: Vol. 12, No 2, 2019
Published date: 06-2019 (print) / 06-2019 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Annisa Cahyaningsih
Universitas Gadjah Mada

Ardyanto Fitrady
Universitas Gadjah Mada
Keywords: asymmetric decentralization, synthetic control methods, public service provision, Papua Province, Indonesia
DOI: 10.14254/2071-789X.2019/12-2/3
Index PUBMS: 53c0c9bd-ad3c-11e9-bbfd-fa163e0fa1a0
Language: English
Pages: 48-63 (16)
JEL classification: H71, H72, H75, H77

This study examines the causal effect of asymmetric fiscal decentralization on education and health outcomes in Papua Province, Indonesia, from 1994 to 2016, using the Synthetic Control Method (SCM). The counterfactual series of this study is constructed by using a synthetic control unit deriving data from 21 provinces in Indonesia. It is found that the asymmetric fiscal decentralization which started with the enactment of Law No 21 as of 2001 on Special Autonomy for the Papua Province has negative effects on education and health outcomes in Papua. It is also observed that the outcome gap between the treatment unit and the synthetic control unit also grows over time. Thus, this paper concludes that asymmetric fiscal decentralization is ineffective as evidenced by education and health outcomes in Papua. This paper makes a valuable contribution to the empirical literature on the macroeconomic effects of asymmetric fiscal decentralization. While fiscal decentralization has positive impacts on education and health outcomes in most literature, this paper shows adverse results for the case of Papua Province.


1. Abadie, A., Diamond, A., & Hainmueller, J. (2010). Synthetic control methods for comparative case studies: Estimating the effect of California’s tobacco control program. Journal of the American statistical Association, 105(490), 493-505.

2. Abadie, A., Diamond, A., & Hainmueller, J. (2011). Synth: An r package for synthetic control methods in comparative case studies. Journal of Statistical Software, 42(13), 117.

3. Abadie, A., & Gardeazabal, J. (2003). The economic costs of conflict: A case study of the Basque Country. American economic review, 93(1), 113-132.

4. Alm, J., Aten, R. H., & Bahl, R. (2001). Can Indonesia decentralise successfully? Plans, problems and prospects. Bulletin of Indonesian Economic Studies, 37(1), 83-102.

5. Asfaw, A., Frohberg, K., James, K. S., & Jütting, J. (2007). Fiscal decentralization and infant mortality: empirical evidence from rural India. The Journal of Developing Areas, 17-35.

6. Bagchi, A. (2003). Rethinking federalism: changing power relations between the center and the states. Publius: The Journal of Federalism, 33(4), 21-42.

7. Barankay, I., & Lockwood, B. (2007). Decentralization and the productive efficiency of government: Evidence from Swiss cantons. Journal of public economics, 91(5-6), 1197-1218.

8. Bardhan, P., & Mookherjee, D. (2003). Poverty alleviation effort of West Bengal panchayats. Economic and Political Weekly, 39(9), 965-974.

9. Bird, R. M. (2003). Asymmetric Fiscal Decentralization: Glue or Solvent? (No. paper0309). International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.

10. Cantarero, D., & Pascual, M. (2008). Analysing the impact of fiscal decentralization on health outcomes: empirical evidence from Spain. Applied Economics Letters, 15(2), 109-111.

11. Dupont IV, W., Noy, I., Okuyama, Y., & Sawada, Y. (2015). The Long-Run Socio-Economic Consequences of a Large Disaster: The 1995 Earthquake in Kobe. RIETI Discussion Paper Series, 15-E-035, 1-22.

12. Faguet, J.P., & Sánchez, F. (2014). Decentralization and access to social services in Colombia. Public Choice, 160(1-2), 227-249.

13. Faguet, J. P., & Sanchez, F. (2008). Decentralization’s effects on educational outcomes in Bolivia and Colombia. World Development, 36(7), 1294-1316.

14. Garcia-Milà, T., & McGuire, T. (2007). Fiscal decentralization in Spain: an asymmetric transition to democracy. Fiscal Fragmentation in Decentralized Countries, 208-223.

15. Huda, Ni’matul. (2014). Desentralisasi Asimetris dalam NKRI: Kajian terhadap Daerah Istimewa, Daerah Khusus dan Otonomi Khusus. Bandung: Nusa Media.

16. da Iry, A. G. (2009). Dari papua meneropong Indonesia. Jakarta: PT. Gramedia Widiasarana Indonesia.

17. Rubio, D.J., Prieto, D.C., & Sáez, M.P. (2011). Is fiscal decentralization good for your health? Evidence from a panel of OECD countries. In XVIII Encuentro de economía pública, 63.

18. Kaul, A., Klößner, S., Pfeifer, G., & Schieler, M. (2015). Synthetic control methods: Never use all pre-intervention outcomes together with covariates.

19. Khaleghian, P. (2003). Decentralization and public services: the case of immunization. The World Bank.

20. Kraemer, M. (1997). Intergovernmental transfers and political representation: empirical evidence from Argentina, Brazil and Mexico (No. 345). Working Paper, Inter-American Development Bank, Office of the Chief Economist.

21. Seymour, R., & Turner, S. (2002). Otonomi daerah: Indonesia's decentralisation experiment. New Zealand Journal of Asian Studies, 4, 33-51.

22. Law No. 25 of 1999 on Fiscal Balance between the Central and the Local Government. Republic of Indonesia. 19 May 1999.

23. Law No. 21 of 2001 on Special Autonomy for the Papua Province. Republic of Indonesia. 21 November 2001.

24. Law No. 32 of 2004 on Local Autonomy. Republic of Indonesia. 15 October 2004.

25. Law No. 33 of 2004 on Fiscal Balance between the Central and the Local Government. Republic of Indonesia. 15 October 2004.

26. Letelier S, L., & Ormeño C, H. (2018). Education and fiscal decentralization. The case of municipal education in Chile. Environment and Planning C: Politics and Space, 36(8), 1499-1521.

27. Litvack, J., Ahmad, J., & Bird, R. (1998). Rethinking decentralization in developing countries. The World Bank.

28. Madubun, J., Akib, H., & Jasruddin. (2017). The Prototype Model of Asymmetric Decentralization in Providing Public Services to the Island Areas. Mediterranean Journal of Social Sciences, 8(2), 209-18.

29. McCleland, R & Gault, S. (2017). The Synthetic Control Method as a Tool to Understand State Policy. Washington, DC: Urban Institute.

30. Mehmood, R., Sadiq, S., & Khalid, M. (2010). Impact of Fiscal Decentralisation on Human Development: A Case Study of Pakistan [with Comments]. The Pakistan Development Review, 513-530.

31. Ministry of Finance Republic of Indonesia. (2018). Local Financial Data. Accessed on 23 March 2018.

32. Musa'ad, M. A. (2016). Kontekstualisasi Pelaksanaan Otonomi Khusus di Provinsi Papua: Perspektif Struktur dan Kewenangan Pemerintahan. Kajian, 16(2), 357-385.

33. Musgrave, A.R. (1959). The Theory of Public Finance. New York. Toronto and London: McGraw-Hill.

34. Nasution, A. (2017). The government decentralization program in Indonesia. In Central and Local Government Relations in Asia. Edward Elgar Publishing.

35. Oates, W.E. (1972). Fiscal Federalism. New York: Harcourt Brace Jovanovich.

36. Oates, W.E. (1999). An Essay of Fiscal Federalism. Journal of Economic Literature, 37(3), 1120-1149.

37. Peña, P.S. (2007). Evaluation of the Effects of Decentralization on Educational Outcomes in Spain. XIV Encuentro de Economia Publica, Universidad de Santander, Spain.

38. Prud’homme, R. (1995). The dangers of decentralization. World Bank Research Observer, 10, 201-220.

39. Ranis, G. & Steward, F. (1994). Decentralisation in Indonesia. Bulletin of Indonesian Economic Studies, 30(3), 41-72.

40. Rodríguez-Pose, A. & Gill, N. (2005). On the Economic Dividend of Devolution. Regional Studies, 39(4), 405-420.

41. Salinas, P. & Solé-Ollé, A. (2018). Partial Fiscal Decentralization Reforms and Educational Outcomes: A Difference-in-differences Analysis for Spain. Journal of Urban Economics, 107(9), 31-46.

42. Samadi, A. H., et al. (2013). The Effect of Fiscal Decentralization on Under-five Mortality in Iran: A Panel Data Analysis. Health Policy and Management, 1(4), 301-306.

43. Sanogo, Tiangboho. (2019). Does Fiscal Decentralization Enhance Citizens’ Access to Public Services and Reduce Poverty? Evidence from Côte d’Ivoire Municipalities in a Conflict Setting. World Development, 113(1), 204-221.

44. Schwartz, J., Guilkey, D., & Racelis, R. (2002). Decentralization, allocative efficiency and health service outcomes in the Philippines. In Measure Evaluation. Chapel Hill, North Carolina: Carolina Population Center University of North Carolina.

45. Solé-Ollé, A. & Esteller-Moré, A. (2005). Decentralization Provision of Public Inputs, Government Responsiveness to Local Needs, and Regional Growth: Evidence from Spain. Institut d’Economia de Barcelona Working Paper. Barcelona: Institut d’Economia de Ba

46. Tanzi, V. (2002). Pitfalls on the Road to Fiscal Decentralization. In Managing Fiscal Decentralization, ed. E. Ahmad and V. Tanzi, 425-436. London and New York: Routledge.

47. Tarlton, C. D. (1965). Symmetry and Asymmetry as Elements of Federalism. Journal of Politics, 27(4), 861-874.

48. Tiebout, C. M. (1956). A Pure Theory of Local Expenditures. Journal of Political Economy, 64, 416-424.

49. Tillin, L. (2007). Unity in Diversity? Asymmetry in Indian Federalism. The Journal of Federalism, 37(1), 45-67.

50. Uchimura, H. (2012). Health Development in the Decentralized Health System of the Philippines: Impact of Local Health Expenditures on Health. In Fiscal Decentralization and Development, Experiences of Three Developing Countries in Southeast Asia, ed. H. U

51. UNDP. (1990). Human Development Report 1990. New York: Oxford University Press.

52. Watts, R.L. (1999). Comparing Federal Systems. Second edition. Kingston, Canada: Institute of Intergovernmental Relations, Queen’s University.

53. Watts, R.L. (2005). A Comparative Perspective on Asymmetry in Federations. Asymmetry Series, 4, 2-5.

54. Wehner, J. (2000). Asymmetrical Devolution. Development Southern Africa, 17(6), 249-262.

55. White, S. (2011). Government Decentralization in the 21st Century, A Literature Review. A Report of the CSIS Program and Crisis, Conflict and Cooperation. Washington, DC: Center for Strategic & International Studies.

56. World Bank. (2005). East Asia Decentralizes: Making Local Government Work. Washington DC: The World Bank.

57. Zhang, T. & Zou, H. (1998). Fiscal Decentralization, Public Spending, and Economic Growth in China. Journal of Public Economics, 67, 221-240.