A Gap That Structure Does Not Predict: The Revenue–Expenditure Balance Across 508 Jurisdictions
Keywords:
budget balance, fiscal structure, subnational finance, revenue volatility, geographyAbstract
Whether a local government spends more than it receives in a year is usually explained by what kind of government it is: how much revenue it raises itself, how large it is, how dependent it is on transfers. Across the complete population of 508 Indonesian district-level governments in fiscal year 2024, none of these explains anything. The gap between revenue and expenditure correlates with the own-revenue ratio at 0.040, with the logarithm of size at −0.036, with the transfer share at −0.033 and with the capital share of expenditure at 0.034 — every coefficient within four hundredths of zero. Yet the gap is far from random. Grouped by province, the within-province standard deviation of the balance ranges from 1.03 percentage points in one province to 13.04 in another, a spread of nearly thirteenfold, and the most volatile provinces are commodity-producing ones while the least volatile are in Java. If revenue that is scheduled to arrive within the year arrives unevenly, the balance measures the schedule rather than the choices, and the structural correlates would be expected to vanish, which is what they do. The article argues that the in-year balance is a function of revenue arrival rather than of fiscal structure, that it is therefore a poor indicator of fiscal management, and that its dispersion rather than its level is what carries information.References
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