Legislature Size, Local Government Spending, and Public Service Access in Indonesia

Abstract

This study examines the impact of legislature size on local public finance outcomes in Indonesia. The investigation employs both continuity- and randomization-based regression discontinuity methods to accommodate the endogeneity of council size and to identify its causal effects on local government spending and service delivery. Several studies have examined the influence of increasing legislature size on expenditures, but no consensus has emerged on the direction of impacts. Moreover, interpretation of the efficiency of derived spending effects has remained elusive and reliant on ad-hoc theorizing. This is the first study to examine the causal impact of council size on service outcomes, thereby facilitating an empirically-based understanding of expenditure efficiency effects. The study finds that increasing legislature size negatively affects local government total and capital spending. The investigation also shows that rising legislature size has a negative influence on citizen access to public services, explicitly indicating a decline in local efficiency. The findings contradict recent explanations of similar empirical results. (revised March 2018) Show more