Abstract
District-level spending in Indonesia positively affects both access to and the
quality of education. How much is spent in each district is largely determined by
the magnitude of fiscal transfers that each district receives from the central government. These intergovernmental fiscal transfers are allocated very inequitably
across districts, which vary in their ability to achieve the education objectives
desired by their citizens. This ultimately results in an inequitable distribution of
education outcomes. A number of perverse incentives embedded in the current
system of fiscal transfers encourage overspending on teachers at the expense of
expenditure on other inputs, including teaching materials and capital. The
resulting inefficiency of spending suggests that many districts could supply
more and better education, even without any additional resources. As a technical
matter, both the inequitable allocations and the perverse incentives could easily
be overcome, but politically, they are significantly more challenging to solve. The
use of performance-based grants might be one way to improve education outcomes, but these are likely to be difficult both to design and to execute.
Furthermore, performance-based funding has been used in other sectors in
Indonesia with little success. Not only are technical reforms to the intergovernmental fiscal system needed, but longstanding governance challenges at the local
level will also need to be overcome.
Original language | English |
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Title of host publication | The Role of Intergovernmental Fiscal Transfers in Improving Education Outcomes |
Editors | Blane Lewis, Samer Al-Samarrai |
Place of Publication | Washington |
Publisher | World Bank Group |
Pages | 137-162 |
Edition | 1 |
ISBN (Print) | 978-1-4648-1693-2 |
Publication status | Published - 2021 |