Panel Paper: All or Nothing! Public Goods Provision Under Partial Versus Full Decentralization in Indonesia

Sunday, April 9, 2017 : 10:20 AM
HUB 260 (University of California, Riverside)

*Names in bold indicate Presenter

Deepak Singhania, University of California, Riverside
Decentralization has dramatically altered governance in developing countries. However, the empirical evidence on its welfare effects has been limited and ambiguous. I argue that this ambiguity is due to a misidentification of different types of decentralization – namely administrative, political and fiscal – and their synergies. In order to test this claim, the paper employs a unique Indonesian panel of village level outcomes and a difference-in-differences estimation strategy with village level fixed effects. I show that use of a naïve specification that only considers political or administrative decentralization as separate treatments while neglecting their synergies leads to an omitted variable bias problem. Results from a more complete specification suggest that districts that have both types of decentralization display significantly greater welfare improvements compared to those that face only political or administrative decentralization or no decentralization at all. I also provide evidence on improvements in governance.