Analysis of the Flypaper Effect in Personnel Expenditure: Evidence from Indonesian Local Governments
Article Sidebar
-
Unconditional Grant, Personnel Expenditure, Flypaper Effect
Abstract
Research Originality — Studies on the flypaper effect phenomenon in Indonesia has often focused primarily on total local government expenditure. Even when studies have examined specific expenditure types, they tended to analyze expenditure by function, areas that are often more heavily controlled by the central government. This study attempts to contribute to the literature by exploring the flypaper effect in specific expenditure categories in Indonesia, particularly those with unique characteristics such as personnel expenditure.
Research Objectives — This study investigates the presence of the flypaper effect in Indonesia and contributes to the literature by exploring it within specific expenditure categories in Indonesia, particularly personnel expenditure, which has unique characteristics.
Research Methods — This study uses balanced panel data from 480 district and municipal governments in Indonesia for 2015–2022 and applies a fixed-effects panel regression to identify the flypaper effect, with interaction terms capturing the COVID-19 period.
Empirical Results — The findings confirm the presence of the flypaper effect in total local government expenditure, particularly in personnel expenditure. Furthermore, the COVID-19 pandemic reduced the impact of transfer funds, especially unconditional grants, on total local government expenditure and personnel expenditure.
Implications — The rationalization of spending, not only on total local government expenditure but also on personnel expenditure, played a role in enhancing local governments’ efficiency in managing transfer funds.
Full text article
References
Alam, R. M., & Kijima, Y. (2020). Can a higher wage attract better quality applicants without deteriorating public service motivation? Evidence from the Bangladesh Civil Service. International Journal of Public Administration, 1-16. https://doi.org/10.1080/01900692.2020.1729185
Aritenang, A., & Sonn, J. W. (2018). The effect of decentralization and free trade agreements on regional disparity in a developing economy: The case of Indonesia, 1993–2005. International Journal of Urban Sciences, 22(4), 546-564. https://doi.org/10.1080/12265934.2018.1425155
Artati, Y. W., & Wahyuni, R. T. (2016). Fenomena flypaper effect pada pengeluaran pemerintah daerah fungsi pendidikan di Indonesia. Jurnal Badan Pendidikan dan Pelatihan Keuangan, 9(2), 146-159. https://jurnal.bppk.kemenkeu.go.id/jurnalbppk/article/view/124
Badrudin, R., & Rimawan, M. (2022). The Flypaper effect as political budget to achieve economic growth in Eastern Indonesia. International Journal of Trade and Global Markets, 15(3), 313–331. https://doi.org/10.1504/IJTGM.2022.124095.
Bochsler, D., & Hanni, M. (2017). What democracy do we want? The problematic focus on the median voter. Swiss Political Science Review, 1-9. https://doi.org/10.1111/spsr.12262.
Broadway, R., & Shah, A. (2007). Intergovernmental fiscal transfers: Principles and practice. Washington, DC: The World Bank.
Chygryn, O., Petrushneko, Y., Vysochyna, A., & Vorontsova, A. (2018). Assessment of fiscal decentralization influence on social and economic development. Montenegrin Journal of Economics, 14(4), 69-84. DOI: https://doi.org/10.14254/1800-5845/2018.14-4.5.
Dautovic, E. (2018). The weight of the median voter ageing on public debt. Constitutional Political Economy, 29, 69-92. https://doi.org/10.1007/s10602-017-9248-8.
Ekananda, M. (2016). Analisis ekonometrika data panel. Jakarta: Mitra Wacana Media.
Goeminne, S., Smolders, C., & Vandorpe, E. (2017). The real impact of a one-off fiscal restriction: Empirical evidence of a flypaper effect in Flemish municipalities. Public Money & Management, 37(4), 285-292. https://doi.org/10.1080/09540962.2017.1295732.
Hill, H., & Vidyattama, Y. (2016). Regional development dynamics in indonesia before and after the 'big bang' decentralization. The Singapore Economic Review, 61 (1), 1-27. DOI: https://doi.org/10.1142/S0217590816400270.
Issenova, G., Bokayev, B., Nauryzbek, M., Torebekova, Z., Kosherbayeva, A., & Amirova, A. (2024). An examination of civil servants’ assessment of the new civil service reforms in Kazakhstan. Central European Journal of Public Policy, 18(2), 2-16. https://doi.org/10.2478/cejpp-2024-0006.
Köthenbürger, M., & Loumeau, G. (2023). Tax responses in local public finance: The flypaper effect at work. CESifo Working Paper, 10354, 1-29. http://hdl.handle.net/10419/271998.
Leduc, S., & Wilson, D. (2017). Are state governments roadblocks to federal stimulus? Evidence on the flypaper effect of highway grants in the 2009 recovery act. American Economic Journal: Economic Policy, 9(2), 253-292. https://doi.org/10.1257/pol.20140371.
Maharjan, R., & Vidyattama, S. (2024). Decentralization and Regional Economic Growth in Indonesia: An Analysis of Governance and Fiscal Decentralization. Law and Economics, 17(1), 23-34. https://journals.ristek.or.id/index.php/LE/article/view/65.
Mitchell, W., James, R., & Wickham, A. M. (2019). Government Wage Bill Management and Civil Service Reform in the Eastern Caribbean Currency Union. IMF Working Paper 110, 1-33. DOI: https://doi.org/10.5089/9781498304214.001.
Ohsawa, T., & Yang, T. (2022). Productive effects of public spending, spillovers, and optimal matching grant rates. Humanities and Social Sciences Communications, 9, 1-8. https://doi.org/10.1057/s41599-022-01378-z.
Prado, P. H., & da Silva, C. G. (2020). Wagner’s law and fiscal illusion: An analysis of state government finances in Brazil. Review of Development Economics, 24(2), 628-643. https://doi.org/10.1111/rode.12662.
Rahmasari, T. F., Darmastuti, D., & Nurrahman, K. A. (2024). Local finance and regional expenditures: is there a flypaper effect in Indonesia? in The 3rd Jakarta Economic Sustainability International Conference, KnE Social Sciences, 62-84. https://doi.org/10.18502/kss.v9i20.16474.
Rios, V., Hortas-Rico, M., & Pascual, P. (2022). What shapes the flypaper effect? The role of the political environment in the budget process. Local Government Studies, 48(5), 793-820. https://doi.org/10.1080/03003930.2020.1866555.
Sachs, M. (2021). Fiscal dimensions of South Africa’s Crisis. Public Economy Project, SCIS Working, 15, 1-52. https://www.michaelsachs.joburg/wp-content/uploads/2021/04/Sachs-2021-Fiscal-dimensions-Working-Paper-15.pdf.
Sachs, M., Amra, R., Madonko, T., & Willcox, O. (2023). Austerity without consolidation: Fiscal policy and spending choices in budget 2023. SCIS Working Paper, 60, 1-28. https://www.michaelsachs.joburg/wp-content/uploads/2023/07/Spending-Choices-July-2023.pdf.
Sachs, M., Ewinyu, A., & Shedi, O. (2024). The government wage bill: Employment and compensation trends in South Africa. Development Southern Africa, 41(5), 888-911. https://doi.org/10.1080/0376835X.2023.2249016.
Siburian, M. E. (2019). Fiscal decentralization and regional income inequality: evidence from Indonesia. Applied Economics Letters, 1-4. https://doi.org/10.1080/13504851.2019.1683139.
Talitha, T., Firman, T., & Hudalah, D. (2020). Welcoming two decades of decentralization in Indonesia: a Regional development perspective. Territory, Politics, Governance, 8(5), 690-708. https://doi.org/10.1080/21622671.2019.1601595.
Wati, L. N., Ispriyahadi, H., & Zakaria, D. H. (2022). The flypaper effect phenomenon of intergovernmental transfers during the covid-19: Evidence from Indonesia. Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, 40(2), 353-373. https://doi.org/10.18045/zbefri.2022.2.353.
Yüksel, C. (2021). The Flypaper Effect: “Reality” or “Myth”? Evidence from Turkey. Sosyoekonomi, 29(49), 483-500. https://doi.org/10.17233/sosyoekonomi.2021.03.24.
Authors
Copyright (c) 2025 Indonesian Treasury Review: Jurnal Perbendaharaan, Keuangan Negara dan Kebijakan Publik
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyright notice can be accessed here