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"This book analyses how different institutional intergovernmental transfer designs influence patronage and favoritism in public fund allocations in Indonesia. Presenting original research and investigating existing theories on the determinants of public fund allocations, the book uses Indonesia as a case study. Indonesia, often claimed to be characterized by money politics, provides an ideal setting for this analysis. The countries' decentralized fiscal system consists of various institutional intergovernmental transfer designs allocating public funds to a large variety of districts to finance public service provision. The author exploits those distinctive differences between various institutional intergovernmental transfer designs and investigates their influence on the prevalence of favoritism and patronage in public funds allocations while holding the political system, the observation period, and the government officials involved constant. A valuable contribution to the literature on the political economy of redistribution, this book will be of interest to academics working on economics and political science, particularly in public finance and development economics, but also in development studies or Southeast Asian studies"--

Can formula-based transfers effectively limit favoritism and political patronage in public funds allocations? Formula-based transfers that tie the allocation of public funds to local development indicators are often seen as one effective measure to reduce special-interest politics, although the limited empirical evidence on formula-based transfers suggests the opposite. However, the few existing empirical studies evaluate formula-based transfers without comparing them to a more discretionary counterfactual, such as a non-formula-based institutional transfer design. Indonesia's institutional public grant design provides a unique opportunity to compare these two transfer designs within the same country for the first time. My analysis allows me to investigate special interests in public funds allocations holding the political system, the observation period, and the government officials involved constant, while varying the institutional transfer design. Using a fixed-effects model on an unbalanced panel data set of 428 Indonesian districts from 2004- 2017, the results show that non-formula-based special allocation grants are systematically biased toward Indonesia's national Budget Commission members' home districts. The home districts of the same set of Budget Commission members do not, in contrast, receive significantly higher per capita transfers under the formula-based transfer design. These results illustrate that - in contrast to its more discretionary alternative - a formula-based institutional public grant design can effectively limit public fund manipulations by government officials.

Are public grant allocations biased toward the birth districts of governors, and if so, what explains this favoritism? The allocation of budget authority to local government officials is a common trend around the developing world but is often criticized for transferring favoritism from the center to lower government levels. To limit the risk of such grant manipulations in fiscally decentralized countries, it is crucial to analyze the influence of such informal ties at the subnational level. Using a unique panel data set of 410 Indonesian districts for the period 2005-2013, I exploit the discretionary nature of a government grant and a large amount of asynchronous local direct elections to investigate if the origin of the provincial governor determines fund allocations to the district level. I show that birth districts of incumbent governors receive significantly larger shares of discretionary grants compared with the other districts within a province. Local favoritism is driven by governors with a political history in the mayor's office of their birth district and limited by local electoral accountability. Classical pork- barrel politics, however, as reelection motives or formal political party ties to the district administration, do not explain local favoritism. The allocations of formula-based transfers, which limit the discretionary power of a governor, are not affected by local favoritism. These results illustrate the importance of non-discretionary institutional grant design and local democratization reforms in the context of Indonesia's political system. The country is a young democracy characterized by low ideological cleavages, little party loyalty, and the prevalence of money politics in its highly decentralized fiscal system. These features are not unique to Indonesia and characterize a number of developing countries; however, and they are in sharp contrast to established democracies for which subnational favoritism has been analyzed.

We analyze the allocation of discretionary grants from the central government to local governments in Indonesia. Using OLS and Fixed Effects models on an unbalanced panel data set for more than 400 Indonesian districts covering the period 2005-2013, we investigate whether the allocation of the grants is determined by the need of a district, by political alignment of the central government with the local district heads, or by reelection motives of the incumbent president. We find that grant allocations are not determined by need characteristics and that political considerations matter significantly. Districts with low support for the president received significantly more than the core supporting districts, especially in the year of national elections. This effect is limited to the first term of the president. In the second term, after which reelection is impossible, political considerations were largely absent. This pattern is consistent with the view that the incumbent president considers discretionary grants as an instrument to increase reelection probabilities. Unlike the evidence for most countries, we find no effect for political party alignment with local district heads. Our results are robust to the inclusion of a number of other variables capturing competing motives.