Academic journal article International Journal of Business and Society

Government Expenditure, Political Cycle & Rent-Seeking

Academic journal article International Journal of Business and Society

Government Expenditure, Political Cycle & Rent-Seeking

Article excerpt


Prior studies show that political budget cycle (PBC) occurs in new democratic countries (Brender, 2003; Brender and Drazen, 2005; Shi and Svensson, 2006). The fall of President Soeharto, second president who ruled for 32 years, marked a crucial turning point for Indonesia's democracy. The 1999 election was the first genuinely democratic election since 1955. In 2005, Indonesia became a presidential democracy. Indonesian citizen vote directly the president, regional governor, national and regional representative council (DPR/DPRD). These democratic reform result in more transparent and accountable election process for Indonesian. However, this direct election might lead to greater political competition and high-cost democracy. Winning the elections becomes the ultimate goal of every party and candidate at all costs. High cost in political campaign leave room for expropriation. Political corruption and money politics became more severe. Valsecchi (2013) find that direct elections increase the number of corruption crimes in Indonesia. Consistently, Sjahrir et al., (2013) find that incumbents expropriate local government budget through discretionary funds to increase the probability of re-election. This PBC phenomenon becomes more prevalent in period of direct regional elections.

Since decentralization distribute power to local politicians, regional elections would seem to provide an abundant corruption practice, money politics, and nepotism between candidates and voters. Many voters expect 'appreciation' for the votes they have or may cast, not only in cash also in donation and provision during the period of election (Simandjuntak, 2012). This corruption behavior tends to expropriate APBD (Regional Governments Budget) for personal benefit. Based on data from KPK (Corruption Eradication Commission), from 332 corruption suspects during 2004-2011, most of the suspects are the 1st and 2nd grade of government upper-echelon officials with 106 suspects, 69 suspects of private party, 65 suspects of parliament member, and another 31 suspects are the district heads and provincial governors.

Asymmetries information and weak governance may lead to expropriation of the executive by allocate resources inefficiently. Mauro (1998) found that most of the budgets will be likely allocated to projects that are easy to be corrupted or popular project rather than for social and economies benefit. These expropriation are more severe during electoral period, particularly if the incumbents re-electable because political budget cycle is driven by re-election incentives. The incumbents have incentives to execute programs that are popular rather than beneficial. Generally, PBC results in reducing other budget allocation such as health-care, education, and another essential public spending. Misallocation of government budget will significantly influence the regional economic growth. PBC might be a preliminary red flag of rent-seeking behavior or even a corruption. Empirical investigation of PBC will provide evidence whether this behavior are prevalent across region in Indonesia.

This research extend previous studies on political budget cycle (PBC) phenomena in Indonesia by examining disaggregation of government expenditure that might indicate a rent-seeking behavior. Sjahrir et al. (2013) are the first to explore the political budget cycle in Indonesia. However, their focus on their paper in on discretionary and non-discretionary expenditures. Moreover, they find that the discretionary expenditure shows a cyclical pattern in direct election and especially if the incumbent running for reelection.

In order to examine the political budget cycle specifically in direct election period, we exploit the particular discretionary expenditure in district level across different period of elections. Instead of using fiscal policy (e.g. total government spending, expenditures in development projects, administrative expenditures) to capture political budget cycle, this research uses particular expenditures budget that are more prone to abuse such as social grant expenditure and grant expenditure. …

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