Structure of local government budgets and local fiscal autonomy: Evidence from Indonesia

Local governments play an important role in the economic and social development of local services provided to localities. In Jordan, local governments face problems and challenges that impede this development. The purpose of this descriptive study is to investigate the magnitude of challenges faced by local governments using a random sample (251) of mayors and heads of provincial governorates. Qualitative methods with a purposive sample employing twenty in-depth face-to-face interviews were conducted to identify the major challenges. After analyzing data using the SPSS, the study pointed out that the lack of financial resources and the lack of independence of local government in managing local funding is another major challenge. The study revealed that environmental protection was the biggest challenge. Responsiveness and public participation are other challenges faced by local governments. Based on the study results, the recommendation and provision of centralized technical assistance are required to maintain environmental protection. However, capacity building for local employees is a must. The critical financial position of local governments needs to be addressed by re- evaluating the share of funds allocated to local units.

The main objective of this research is to study the role and impact of fiscal decentralization on the macroeconomic stability of the country. The paper analyzes and systematizes approaches to the definition of ‘macroeconomic stability’ concept. The key factors that impact macroeconomic stability are identified. In the framework of this research, the authors identify fiscal decentralization as one of the factors affecting macroeconomic stability. To determine the strength and statistical significance of the above mentioned relationship, the authors suggest presenting macroeconomic stability as a functional dependency between macroeconomic stability and the level of fiscal decentralization, which is described by the following variables: the growth rate of money supply, investment and openness of the economy, fiscal decentralization. In this case, it is suggested to determine the level of fiscal decentralization in three directions: expenditure decentralization, revenue decentralization and expenditure decentralization simultaneously.

This study examines whether the internal control system moderates the relationship among budget expenditure, government size, legislative size, and audit findings on financial statement disclosure in Indonesia. This is a quantitative study that uses the purposive sampling technique to collect data from 240 local governments in Indonesia. Data were analyzed using Structural Equation Modelling (SEM) with Smart PLS. The results show that government size, legislative size, and audit findings had a positive and significant effect on financial statement disclosure, whereas budget expenditure does not. In addition, the findings revealed that the internal control system moderates the relationship between government size and legislative size and financial statement disclosure, but not by audit findings. The study contributed to extending the institutional and agency theory that explains these factors toward disclosure in the local government in Indonesia. The findings suggest that Indonesia’s local governments consider potential factors regarding increasing pressure to carry out disclosure of financial statements, as well as increasing the proper disclosure required by applicable Indonesian regulations.