14 Mar 2016

Inequality and Fiscal Decentralisation in Indonesia: Evidence from the Households Expenditure Data

Heru Wibowo, December 2011
The University of Western Australia

Abstract
This study aims to investigate the relationship between fiscal decentralisation and income inequality in Indonesia. Employing household survey data and district/municipality budget statistics, this thesis shows that inequality increased during 1999-2008 when fiscal decentralisation policies were implemented. It also shows that the widening inequality associated with fiscal decentralisation did not correlate with increasing expenditure polarisation. Moreover, it is confirmed that fiscal decentralisation was accompanied by a growing middle class in Indonesia. Finally, evidence is presented to show that households have tended to converge rather than diverge in terms of real per capita expenditure. The study has obvious policy implications.

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