Bulletin of Monetary Economics and Banking


Syarif Syahrial

Document Type



The paper analyzes the current progress of the fiscal decentralization in Indonesia, characterized by the pressure to improve the law, UU No. 22 and 25199. We apply the probit model on the municipality data in 2002, and estimate the block grant size (DAU) as a function of fiscal needs, the size of region and collusion between central and local government.The result conform the significance of political pressure from rich region to central government, but fail to prove the positive hypothetical relationship between the block grant size and the collusion. The implication is straight forward, that the implementation of the fiscal decentralization must be strengthen to avoid miss allocation of the fund.Keywords:Fiscal policy, decentralization, collussion, probit modelJEL Classification: JEL Classification: C35, E62