Journal of Public Administration and Governance

ISSN 2161-7104
2012, Vol. 2, No. 3

Political decentralization and local public services

performance in Indonesia

Sujarwoto Sujarwoto
Institute for Social Change, University of Manchester, UK
Department of Public Administration, Brawijaya University, Indonesia

Received: July 02, 2012 Accepted: July 28, 2012 DOI: 10.5296/jpag.v2i3.2156

Abstract
This study contributes to the existing decentralization literature by examining the association
between political decentralization and local public service performance in the context of
decentralization reform in Indonesia. The hypothesis is that improve local public service
performance within political decentralization is associated with effective local political
institutions and accountable local government. The hypothesis is tested using Indonesian
Governance Decentralization Survey 2006 which consists of 8,320 households living in 120
local governments. Local government public service performance is measured by perceived
improvement of three basic public services: basic education, health and general
administration services. Multilevel analyses are applied to account for the nested structure of
perceived public service performance within decentralized local government. The results
show that effective local political institutions, better informed citizen and transparency,
citizen political participation via community programs, and the presence of social group in
community are significant for improving local public service performance. These results
reveal after we control the model with household and local government socio-demographic
determinants. The empirical findings suggest that improved local public services performance
requires well functioning local political institutions, better informed citizens and transparent
local government, and effective channels for political participation.

Keywords: political decentralization, local public service performance, Indonesia.

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1. Introduction

The debate on the merits of decentralization has always been the focal point of studies in
politics, economics and public administration. The previous debate has focused on the
provision of a greater variety of public goods that may result from decentralization
(Rondinelli, 1982; Conyers, 1983). More recently, the debate has been emphasized on
political economy issues of institutional process and accountability through political
decentralization reforms (Rodriguez, 2003; Fung, 2003; Bardhan, 2006a; Bank, 2008; Fan,
2009). Political decentralization reforms substantially differ from prior pure administrative
and fiscal decentralization in which they evoke more than a downward delegation of
resources and authority to local government. This recent decentralization emphasizes the
working of political accountability through local political institutions to pursue better local
government and public service (Fung, 2003; Grindle, 2007; Bardhan, 2006a; Bank2008).
Proponents of political decentralization argue that bringing citizens closer to government and
allowing them to hold elected officials accountable are an important foundation to achieve
better local government and public services (Grindle, 2007). When local government is
brought closer those receiving services, beneficiaries of these services would become active
in demanding quality. Because those responsible for quality of services are local governments,
citizens will be more motivated to demand improvements if services decrease in quality.
Moreover, civil servants will have incentives to orient their behavior toward good service
provision because of the potential for public disruption and complaints from unsatisfied
citizens.

Although political decentralization promises accountable local government and better quality
of public services, practice suggested that this was not necessarily the case. Instead of a
consistent pattern of more responsive local governments, researchers found wide variability
across them in terms of democratic practice and local public service performance. Research
discovered that the incentives structures of local institutions are not necessarily aligned with
pressures to improve performance (Grindle, 2007). Indeed, some studies indicated that
elected local governments were not necessarily motivated to perform any better than their
central counterpart in prior decentralization (Treisman2000). In some cases, local
governments may actually be more subject to capture by vested interests than national ones
after decentralization (Bardhan, 2006b; Lessmann, 2010). Bardhan and Mookherjee
(2006b,164) explain some of the basic trade-offs involved in the delegation of decision
making to local government: ``decisions are made on the basis of better (local) information,
but they are made by an agent whose incentives differ from those of the principal thus leading
to a loss of control or an abuse of power''. Using cross countries analyses, Treisman (2000)
found that countries which have more tiers of government tend to have higher perceived
corruption and less effective in providing public services. This finding is supported by other
cross countries studies which shown that public services can suffer as a result of
decentralization (Litvack, 1998; Lessmann, 2010).

The gap between theory and practice of decentralization reform in developing countries has
been assessed by politics, economics, and public administration scholars during the last

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decades. However, most of the existing theoretical and empirical research on decentralization
in this area dealt with the impact of intergovernmental administrative and fiscal relations on
the performance of the governance system as a whole (Tabellini, 1992; deMello, 2001;
Fisman, 2002). Insufficient emphasis has been paid to the varying patterns in the adjustment
of local accountability systems to the new political institution setting created by political
decentralization reform. For example, limited research is found on the transformation of
accountability relationships and their impact upon local government performance and public
service delivery. There are some empirical studies which explore the relationship between
political decentralization and local public service performance in developing countries.
However, most of them either use countries or provinces as unit of analyses (Crook, 1998;
Goldsmith, 1999; Fisman, 2002; Gong, 2006; Treisman, 2000; Blanchard, 2000; Bardhan,
2006a).

Whilst cross country study provides a large sample of countries and a relatively long time
span, such studies are increasingly open to the criticism. There are important unobserved
heterogeneities such as the difference of cultures and overall institutional setting between
countries which may affect on local political accountability and public service performance.
These unobserved heterogeneities may lead to bias estimates on the relation between political
accountability and local public service performance (Maddala, 1999; Nabeshima, 2003;
Kruse, 2009). Nabeshima (2003) notes that production functions that transform various inputs
in public service provision into outputs may differ substantially across countries complicating
estimation and interpretation. Moreover, the locus of decentralization reform in many
countries is generally located at local government or district administration below provincial
administration. Using provincial administration as a unit of analysis is less relevant for
national policy since such analyses are unable to capture the dynamics of decentralization
reform within districts or local governments in which decentralization is implemented.

This study contributes existing research on political decentralization and public service
performance by analyzing local governments within a single country and by ascertaining the
effect of local government contexts using multilevel analyses. The decision to use multilevel
analyses and local governments as a unit of analyses provides some benefits. First, multilevel
analyses offer the advantage of taking account of the nested structure of decentralization
reform at local governments. These analyses allow us to investigate whether the effect of
local government characteristics on local public service performance varies among local
governments. Hence, the effect of local political accountability on local government
performance can be tested appropriately using these analyses. Previous studies have
examined associations of political decentralization and local government performance in
Indonesia (Kaiser, 2006; Eckardt, 2008; Pattinasarany, 2009), but those studies do not
account for nested structure of decentralization reform and local government performance.
Second, the decision to use local governments in one country as a unit analysis was driven by
the ability to control for a number of determinants that potentially intrude with the effects of
political accountability on local government performance. Prior cross country studies show
that accountability is embedded in the broader political, institutional, economic and social
context of a country (Rondinelli, 1989; Litvack, 1998; Manor, 1999). Local government

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studies have the advantage since such contexts are considerably more similar within the
boundaries of a single country than they are across countries. Hence, the effect of political
decentralization on public service performance may more salient than when we use cross
country to test the hypothesis. In addition, by using a large number of local governments
within a single country this study is able to assess to what extent findings from the vast
literature based on cross countries in this field are also found in a single country.

Indonesia constitutes a particularly interesting case not only because of the size of the country
and its political and economic importance, but also the country has made remarkable progress
in creating a decentralized system of government. The local government political system in
Indonesia has changed from highly centralized government to decentralized government. This
decentralization has devolved resources and responsibilities from the central government to
local governments in all governments' administrative sectors, except for security and defense,
foreign policy, monetary and fiscal matters, justice, and religious affairs. Significant public
expenditures have also been devolved to all districts amounting to around 30% of total
national expenditure. The decentralization has also prompted a major reorganization of
political accountability chains in this country. First, it eliminates the hierarchical relationship
between the central, provincial, and local governments. Citizens have freedom to elect their
local leaders and parliaments through direct election. The major and district government
officials are elected by and responsible to the locally elected assembly (Dewan Perwakilan
Rakyat Daerah). Second, for locally assigned responsibilities, the branches of ministries in
the districts are placed under the jurisdiction of local governments. Indonesia's
decentralization, therefore, neatly reflects the concept of political decentralization.

In sum, the research questions to be answered in this paper are: (1) When local governments
are charged with new responsibilities and are equipped with more resources, to what extent
they can enhance their public service performance? Why are some local governments more
effective than others in delivering public services?; (2) What role do political institutions and
incentives play in shaping local public service performance? What is the implication of
political decentralization for better local public services?

2. Political decentralization and local public service performance

The functioning of democratic local governments through decentralization has long merited
attention in politics, economics, and public administration studies. Political decentralization
means the devolution of political authority, responsibilities and public resources to local
governments (Rondinelli, 1982; Conyers1983). This recent decentralization has widely
believed as an effective remedy to reform local government in developing countries. As
Andrews and Shah (2003) point out that local governments in many developing countries are
becoming numerous and are increasingly required to play large roles in providing services,
alleviating poverty, and facilitating development. Decentralization was vital for improving
local government performance and citizen well-being in these countries.

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The existing literatures in politics, economics and public administration offer some strong
arguments in favor of decentralization policies. Most importantly, decentralization should
enhance responsiveness, effectiveness and efficiency of local public services. In this
perspective, decentralization is seen as a way to overcome informational constraints and align
incentives in a political system. First, the empowerment of local governments is supposed to
bring authorities closer to citizens and to increase accountability and the responsiveness of
public services to local citizens' demands and needs (Oates, 1993). Second, decentralization
is assumed to enhance competition among jurisdictions, which compete through tax policies,
expenditure, public services and regulatory policies for mobile firms and individuals.
Competition among local governments creates `market-like incentives' for local governments
to provide attractive combination of public services and policies at competitive local tax rates
(Tiebout, 1956). Third, in addition to economic benefits, decentralization is also motivated by
generally political objectives. Fuhr (1999) argued that the recent wave of political
decentralization starting in the 1980s can be seen as a response to the declining political
legitimacy of centralistic government and fiscal policies. Increasing the public sector's
political accountability is therefore preferred as the political agenda in many areas where
decentralization policies are pursued today.

While there is an array of theoretical reasons why decentralization should be expected to

improve local government performance, the empirical evidence across decentralized
developing countries have not been as supportive. Variation on outcomes of decentralization
is found across decentralized developing countries. Litvack, Ahmad, and Bird (1998) present
evidence from Eastern and Central Europe and suggest that public services can suffer as a
result of decentralization. Crook and Sverrisson (1999) have also provided evidence that
despite extensive strides of devolution of authority and resources to democratically elected
local governments, decentralization in Colombia, West Bengal and Brazil has achieved little
in improving service delivery. Focusing on local governments in urban areas of developing
countries, Mitlin (2000) comes to the conclusion that most of local governments fail to meet
many of their responsibilities to large sections of the population within their jurisdiction.
Nevertheless, scholars also found the contrast portraits of decentralization outcomes. Heller
(2001) shows how decentralization reforms at Kerala and Porto Alegre increase the scope of
local participation and strengthen of local democratic institutions and planning capacity. Blair
(2000) explores the extent to which local democracy promoted participation and
accountability in several countries. Stoner-Weiss (1997) describe the contextual factors that
explained why some regional governments in Russia performed better than others in the wake
of decentralization. From such work, we are beginning to understand the divergence between
the promise of decentralization and its empirical consequences.

Why local governments response differently to new opportunities provided by political

decentralization? A number of studies suggest that the existence of local political institutions
fostering local accountability, the management of local government officials' political
incentives, and the extent of mobilized local citizens’ demand for accountability are necessary
preconditions for effective political decentralization.

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First, a number of studies suggest that outcome of political decentralization reform crucially
depends on the availability of local democratic institutions ensuring that the local citizens can
exercise control over local government affairs. Without local democratic institutions, political
accountability is incomplete (Prudhomme, 1995; Crook, 1998; Bardhan1999). If political
accountability is incomplete, decentralization will create incentives for local vested interests
to capture the local political process and divert public resources to match their own interests
(Bardhan, 1999; Bardhan, 2000). Riker (1964) suggests that the most obvious political
institution guaranteeing accountability is local elections. Subsequent authors point out the
importance of competitive and contestable local elections as an institutional mechanism to
counter local corruption and to ensure local accountability (Rondinelli, 1989; Manor, 1999).
They argue that where local elections are competitive and opposition parties have real
opportunities to win positions of authority, incumbents will be motivated to prove their
competence in the management of public affairs. In contrast, within partisan political
pressures, incumbents will accommodate local vested interests rather than the local citizens’
needs. Ward and Rodriguez (1999) examine the impact of political competition on the
management of city in Mexico. They found the positive effect of political competition to
enhance better management of city in Mexico.

Second, some studies focus on the management of local government officials' political
incentives as pre-requisite for effective decentralization. A number of studies have focused on
accountability in the trade-off between centralized versus decentralized provision of public
goods. Seabright (1996) argues that accountability is a priori higher at the local level, since
citizens who are better informed about government performance can directly monitor and
evaluate public managers. Besley and Burgess (2001) show how information flows and
participation affect the government's decision to respond to citizens' needs or not. Testing
their hypothesis on panel data from Indian states, they find supporting empirical evidence for
their model. They suggest that both transparency and participation increase the political cost
of not responding, thus creating incentives for the government to be more responsive.
Transparency ensures that information is available that can be used to measure the authorities'
performance and to guard against any possibility misuse of powers. Mass media can play a
key role in enabling citizens to monitor the actions of incumbents by providing information
regarding government activities (Besley, 2002). Some scholars have found a direct link
between the transparency in public administration decision making and the performance of
public services (Brinkerhoff, 2003; McGee, 2011). These studies suggest that public
administrations that include explicit mechanisms for citizens to scrutinize the process,
participants and the information involved in the public policy decisions are likely to be
efficient custodians of public funds.

Third, another strain of literature explains that the extent to which local citizens are mobilized
to participate and demand accountability determines decentralization outcomes. According to
this literature, social groups in the local community exert pressure on public sector to provide
better services or more opportunities for participating in policy processes. The most
well-known is Putnam's analysis of Italy's local governments and the impact of such social
groups and social capital (Putnam, 1993). Putnam posits that the degree to which devolution

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of authority lead to better local government is based on the level of social groups and the
extent to which these groups are able to monitor and to hold local officials accountable. The
impact of community participation and social groups on a broad array of democratic reforms
and public services is supported in subsequent empirical research (Booth, 1998; Woolcock,
1998; Heller, 2001; Bowles, 2002). These studies suggest that such social community
participation and social groups can demand for better local governance. Social groups can
also provide models of how improvements can be made, participate in decision making and
implementation activities, and take an active role in monitoring the performance of elected
and administrative official.

Following previous studies, we formulate three hypotheses. First, according to incomplete

accountability hypothesis we expect that ineffective local political institution for ensuring
accountability will lead to lack of public service performance. Second, according to
management of local government officials' political incentives hypothesis we expect that
local governments transparency and the degree of informed citizen are positively associated
to local public service performance. Third, based on the action of citizens and structure of
society hypothesis we expect that citizen political participation and the existed various social
groups in local governments will lead to better local public service performance. Whereas
some of these hypotheses have been tested and supported in earlier cross countries research,
this study will test those hypotheses using local governments as a unit analysis.

3. Indonesian decentralization experience

Indonesia's decentralization meant a significant increase in the importance of autonomous

local governments in service delivery. The failure of earlier attempts to decentralise,
combined with the political crisis in 1998, became fertile for a far reaching approach to
decentralization. Since the 1999, decentralization new bills were enacted and implemented in
2001. The enactment of these bills has changed Indonesia from a highly centralized state to a
decentralized state. In particular the bill on regional government prompted a major
reorganization of political accountability chains in this country. This bill eliminates the
hierarchical relationship between the central, provincial, and local government. In a break
from the past, the local government officials are elected by and responsible to the locally
elected assembly. In addition, for locally assigned responsibilities, the branches of ministries
in the districts are placed under the jurisdiction of local governments. With these new
responsibilities, local governments are obliged to perform a set of key functions, including
the provision of health, education, environmental and infrastructure services.

The concerns around ineffectiveness of indirect political accountability triggered to local

government electoral reform toward direct elections (Pilkada Langsung) in 2004 (Erb and
Sulistiyanto, 2009). This reform made the mayors more directly accountable to the local
citizens by stipulating that he or she would be directly elected by citizens, and provided a
clearer definition of the head‘s political functioning. The law stipulated that the mayors
should: (1) administer the jurisdiction (daerah) as per the guidelines laid down by local
parliament, (2) implement local laws, including budget, (3) present accountability reports to

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the local parliament and central government, and (4) provide information to citizens on the
government‘s performance. The local parliaments or (Dewan Perwakilan Rakyat Daerah)
had greater control over local government heads which previously under central government
controlled through the Ministry of Home Affairs. In the new bills, local parliaments had the
right to impeach local heads, thereby prematurely ending their terms upon an unsatisfactory
delivery of an annual accountability speech.

It was believed that this democratic reform would make the district heads more accountable
to their constituencies (Kaiser et al., 2005). Based on the new local government election
amendment, the government decided to conduct the first batch of direct elections in June
2005 in the local governments where the parliament heads were ending tenure. The first batch
of direct elections concerned all the mayors’ positions that had come due between December
2004 and April 2005. More than a half of mayors were elected trough direct election until
2006 (Figure 1). The rest of mayors were still produced from prior autocratic regime election.
All districts had been subject to direct elections by the end of 2009.

Figure 1: Mayor direct election in Indonesia from 2005 to 2007

Decentralization in Indonesia also brings substantial resources to local governments.

Decentralization has transferred more than a third of national budget to local governments.
Figure 2 shows trend of central government transfer to local government since 1994. Fiscal
transfer from central government to local governments is more than double compared to
central government spending. The central government and donors also have continuously
increased the pool of resources transferred to local governments in relative and absolute
terms. This fiscal reform is followed by reassigning more than 2.5 millions of civil servants

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to districts. This human resources transfer makes the local governments have authority to
manage human resources and capacity. With these changes, local governments are more
independent in mobilizing resources, promoting their own interests, and initiating their own
policies.

Figure 2: Trend of central government spending and local government transfer in Indonesia
1994 to 2007

After five years decentralization, local governments' performance increasingly varies

depending on the extent to which they took advantage offered by decentralization. World
Bank (2003) found a significant number of local governments have forged ahead with
reforms and became the locus for innovative form of government and better public services.
Elsewhere, however, local political contexts became charged with lack of accountability and
failure to respond to local needs (Asia, 2002). There are some evidences that suggest key
political accountability mechanisms are only weakly developed in some of the newly
empowered local governments (Kaiser, 2003; Malley, 2003; Bank, 2003a). Local parliaments
were tending to over-reach their powers, blurring an effective balance of governance between
executive and legislative agencies. Local politics centered on local parliaments were seen as
becoming increasingly vulnerable to money politics. Local corruption and suspected bribes in
the local government have occurred in several local governments (Bank, 2003a). These
suggest that decentralization in the country does not have a uniform impact on local
government's capacity but rather lead to a differentiation process with regard to both
performance and level of accountability across localities. Hence, this study aims to
understand how these different outcomes are brought about and to what extent the new
incentives on political structure and resources from decentralization reform is associated with
local public service performance.

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4. Data, measurements and analytic strategy

4.1. Governance decentralization survey (GDS) 2006 and official statistics

The hypotheses are tested using the data from the Indonesian Governance Decentralization
Survey (GDS) 2006. GDS 2006 were fielded by the World Bank Indonesia in conjunction
with the Centre of Public and Policy at Gadjah Mada University during 2006 (five years after
a radical decentralization). Previous studies used this data to examine decentralization public
services in Indonesia (Kaiser, 2006; Eckardt, 2008; Pattinasarany, 2009). GDS 2006 consists
of a randomized sample of 134 local governments. The sampling ensured representativeness
at both national and local government levels. In each of the sample districts, about 90
households were questioned using structured questionnaires containing their perceptions of
various issues relevant to local governance and public service performance. In particular, the
questionnaire included perceptions on the quality of public services, the workings of various
political process, transparency, and participation. In this paper, we restricted only to
respondents who already have political right to vote in Indonesian national election (age 17
years or older). This yields a sample of 12,860 households living in 134 local governments.
Due to missing data on perceived performance, the total number of sample used for analysis
becomes 8,320 households living in 120 local governments.

The GDS 2006 survey also collects information from public managers such as public school
head, public hospital head, public health centre head, and local public education and health
bureau head. More than 3000 public managers were asked about their education background
and the implementation of decentralization in their institutions. We used the education
backgrounds of public managers as a proxy to measure local government bureaucracy
capacity.

The GDS 2006 survey was linked to other survey and independent official statistics dataset.
First, we linked the survey with the socio-economic data from the Indonesian village
potential census (Podes) 2006. The Podes dataset consists of detailed information about the
number of active social groups in all village and urban neighborhoods within local
governments. Aggregate villages and urban neighborhoods are calculated to measure the
distribution of active social groups within a local government. Second, we linked the survey
with the Indonesian socio economic survey (Susenas) 2006 from the governments Central
Bureau of Statistics (Biro Pusat Statistik) to collect information on the distribution of adult
literacy across local governments. Third, we linked the survey with the national election
results 2004 to collect information on the distribution of political parties’ faction in local
governments and the proportion of national election voters at local governments. The data
base consists of information about local governments which already implemented direct
election up to 2007. We found more than a half of local governments elect mayors and
parliaments through direct election in 2006. Other local governments are still led by mayors
and parliaments resulted from previous regimes as they have started their jobs before direct
election was implemented. This unique political condition provides opportunity to examine
the effect of different local government political system on happiness. Lastly, we included

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district fiscal data from the Indonesian Ministry of Finance into the dataset. The Indonesian
Ministry of Finance has compiled districts development budget and expenditure information
since 1994. We use fiscal data 2005 (one year before the GDS survey) as districts
development spending in the Indonesian government budgeting system takes at least one year
to take effect. Since the price level of consumer goods and services in Indonesia vary across
regions (Strauss, 2004), we deflate the amount of local governments' spending with consumer
price index for urban and rural regions. Following Thomas and Frankenberg (2007) and
Resosudharmo and Jotzo (2009), rural inflation is about 5% higher than urban inflation. This
calculation produces real spending adjusted with regional inflation. The consumer prices
index 2005 data are retrieved from the Indonesian Government Central Bureau of Statistics
(BPS).

This link with other survey and official statistics dataset enhances accuracy or reduces
measurement error. The use of independent, official statistic dataset also alleviates concerns
arising from the use of the same surveys in calculating both aggregate and individual
determinants in the estimation (Deaton, 2001).

4.2. Measurements

This study uses citizens' responses of public service improvement as a proxy to measure local
public service performance. Prior studies show that this measure is correlated with objective
measure of performance and often used in business and public administration literature as a
relatively easy and effective measures for evaluating service performance (see among others
(Brown, 1983; Parks, 1984; DeHoog, 1990; Erevelles, 1992; Bennet, 1999; Swindell, 2000,
Deichmann, 2003; Andrews, 2003;Myburgh, 2005; Bratton, 2007;Andaleeb, 2007)). Such
subjective measure has also increasingly used in wellbeing and health literature as an
alternative measure of wellbeing and health (Frey, 2002; Lane, 2000; Graham, 2009; Oswald,
2011).

The study focuses on changes in three particular areas where the local government provides
front end services that are directly consumed by citizens: public health, public education,
and general public services including the issuance of permits, identity cards and various
licenses. These service areas were chosen since they represent the bulk of local public
expenditure. Taken together, they account for between 40\% and 50\% of local public
expenditure. These services are also crucial to human development and they allow for a
representative and plausible appraisal of government performance. In the survey, respondents
are asked ``in your opinion, how is the quality of (services) in the districts, compared to two
years ago (the beginning of decentralization)?'' The services include school, local public
health service, general public services, water management, and cleaning services. Perceived
local public service performance index is calculated using confirmatory factor analysis for
three types of services: public health services, public education services, and general public
services. When the observed determinants are categorical, confirmatory factor analysis is also
referred to as item response theory (IRT) analyses (du Toit, 2003; Baker & Kim, 2004 cited
from Muthen and Muthen, 2010).

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Consistent with the general hypothesis, we include a number of determinants into the
analyses that measure variation in the effectiveness of local political institutions. Dummy
direct local election is used to capture direct democracy as a mean for creating electoral
accountability. To measure the effectiveness of local election, we use local conflict incidence
related to local and national election. Perceived local corruption is used to measure interest
group capture in local governments. Since the higher local conflict and interest group capture
weaken accountability, we expect that the higher local conflict incidences and perceived
corruption are negatively associated with performance. To capture the nature of political
competition across local governments, we use the political party fragmentation of the local
council based on the outcomes of the 2004 legislative election. If the share votes of the
winner party is below 40\% this means that the composition of political parties in given local
government is more fragmented1. The direction of the causal effect is difficult to predict since
higher party fragmentation could result in stiffer competition (positive effect) or paralysis and
dispersion of accountability (negative effect).

The degree of informed citizen is measured by the proportion of adult literacy within local
government and respondents' access to mass media, such as newspapers, radio, television,
and Internet. Local government transparency is measured by the extent local government
disseminates their development budget to public. Since informed citizen and transparency are
often assumed will reduce the information problems related to government activities. In turn,
both create forceful incentives for elected officials and civil servants to reduce opportunistic
behavior. We therefore expect that the better informed local citizen and local government
transparency are positively associated with local public service performance.

Citizen political participation is measured by three determinants. First, respondents'

participation in local election is used to measure formal citizen political participation. Second,
informal citizen political participation is measured by respondents' participation in
communities programs, such as community labors, community health services, and water
management. Third, the proportion of various social groups in local governments is used to
measure the association between the density of active social groups and local public service
performance. Since greater citizen political participation in the local government affairs and
the density of active social groups should increase political accountability, the relationship
between these determinants to local public service performance should be positive.

A number of determinants capturing fiscal and local bureaucracy conditions are included to
measure the effect of fiscal decentralization and local bureaucracy capacity on local public
services performance. The model controls for share of public spending on government
administration, education and health on total expenditure. The proportion of public managers
with graduate education is included to control whether bureaucracy capacity affects service
performance. Mayors or bupati from new political party are included to control whether new
local leadership matters for performance. In addition, to control bias on perceived
performance we include individual and household socio demographic and geographic

1
Based on the 2004 legislative election we found the highest share votes for the winner party is 40-50%. The share votes for
second and third winner parties are below 25%.

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determinants. These individual and household socio demographic determinants include age,
gender, education, unemployment and household expenditure. We create dummy
determinants representing respondents living in remote island and Eastern part Indonesia to
capture the effect of geographic location and regional development on local government
performance. This geographic determinant is essential since development stages in Indonesia
vary across regions (Lanjouw, 2001). Respondents living in mainland area and Western part
as more developed region are used as reference groups. Table 1 presents summary statistics of
analytic sample.

Table 1: The description of analytic samples

4.3. Multilevel multiple indicator multiple causes analyses

The locus of political decentralization reform in this study is local government. In this regard,
the analysis needs to recognize the nested structure of decentralization reforms and local
public service performance at local governments. Multilevel analyses are appropriate for this

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analysis. Existing analyses in this area are based either on aggregate data (Eckardt2008) or at
individual level (Bennet, 1999; Bratton, 2007; Pattinasarany, 2009) using ordinary regression
analyses. Hence, such analyses ignore the nested structure of the data in which individuals are
hierarchically clustered within local governments. Ignoring this nesting of individuals within
large local government units may lead to the underestimation of standard errors of effects of
local government level characteristics. As a result, in ordinary regression analyses the
significance of local government level effects is overestimated. Multilevel regression
analyses are able to account for this clustering of individuals within local governments by
separating individual variance in perceive service performance from local government
variance in perceive performance. Hence, hypotheses on effects of local governments
characteristics can be tested appropriately using this technique. For detailed technical
information on multilevel analyses we refer to Skrondal and Rabe-Hesketh (2008).

We use multilevel multiple indicator multiple causes since local public service performance is
an unobserved or latent determinant of three basic services (i.e. health, education, and general
administration services). The latent determinant of local government public services are
tested using logistic item response theory models in which factors with ordered categorical
indicators are referred to as Samejima's graded response model (Muthen, 2010). The Mplus
package makes it possible to carry out the analysis through logistic item response theory
model while other statistical packages (such as Lisrel and Amos) are usually used in factor
analysis for continuous indicators. The models are specified households as level 1 units (i.e.
the hierarchically lowest level of analysis), and local governments as level 2 units (the
highest level) (Figure 3). The models include residual at the household and local government
level. The residual variance is partitioned into between local government's components (the
variance of local government residuals) and within local government (the variance of
household level residuals). In this analysis, we performed multilevel multiple indicator
multiple causes models for household and local government determinants. For each of our
models, we report the estimated regression coefficient, standard errors, household and local
government residual variance, Comparative Fix Index (CFI) and Root-Mean Square Error of
Approximation (RMSEA) as an indicator of model fit (Steiger1990). The CFI falls strictly
between the values of 0 and 1. A CFI value of 0.95 or bigger is often considered to indicate
good fit though a modest value of 0.90 is also accepted in some cases (Hu1999). The RMSEA
provides a test of the extent to which the target model as fitted to the sample data
`approximates' the population model. A RMSEA value of <0.05 is taken to indicate close fit
(Browne, 1993; Hu, 1999), who recommended 0.06 as an upper boundary). Weighted
least-square with mean and variance adjustment (wlsmv) estimator is used as Muthen et al.
(1997) suggested that this is the optimal choice for categorical indicators. As Muthen
explained, Mplus supports modelling with categorical observed variables or combination of
both continuous and categorical outcomes. Further, it also provides a more flexible
parameterization than conventional structural equation modelling software in terms of its
categorical outcome modelling for multiple-group analysis using threshold measurement
parameters that allow for partial invariance across time and group (Muthen, 1996).

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Figure 3: Research framework

Decentralisation:
(A) Political decentralisation (i.e. direct democracy)
(B) Fiscal decentralisation (i.e. fiscal transfer from central to local
government, public spending on public services)

Local government characteristics:

(A) Leadership
(B) Political competition
(C) The density of active social group
(D) Bureaucrats education
(E) Proportion of adult literacy

Local government

Individual

Household characteristics:
(A) Socio demographic determinants (i.e. age,
female, expenditure, employment) Health services
(B) Participation in community programs.
(C) Participation in political election
Citizen satisfaction on
(D) Perceived corruption at local government. Education services
public service
(E) Knowledge about village budget
performance
(F) Knowledge about conflict related to local and
national election. General adm.
(G) Have access to newspaper, radio, television, services
and internet.
(H) Living in remote islands and eastern
Indonesia.

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5. Results

A sense of the importance of the area association with local government performance can be
gained from the maps. We map aggregate citizen response on local public service
performance across local governments (Figure 4). The map highlights the geographical
variations in local government performance across local governments. An attempt at a
summary is given in table 2 (West-East correlation and mainland-remote islands correlation).
The map and table hint at West-East gradients and mainland-remote islands gradients. For
instance, simple correlations between population centroids and local public service index
show that as one moves East, local government performance is reported to decrease (-0.073);
likewise, as one moves remote islands, local public service index is also reported to decrease
(-0.092). Disparities in public services performance exist between Western and Eastern as
well as between mainland and remote island.

Figure 4: The distribution of services satisfaction across 120 local governments)

Table 3 presents the five highest and lowest ranks of perceived local public services
performance within major islands in Indonesia. The stark contrast is shown between four
major islands (Java-Bali, Sumatra, Kalimantan, and Sulawesi) and Eastern and remote islands.
While some local governments in four major islands reports better public service
performance, most of local governments in Eastern and remote islands report lesser public
service performance.

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Table 3: The distribution of five highest and lowest ranks of perceived local public service
performances

Do differences in local conditions for political accountability relate to differences in the

performance of the local governments? Figure 5 presents simple bivariate correlation
between selected local government determinants and perceived local public service
performance index.

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Figure 5: Correlation between local public service performance and some selected local
government’s determinants.

Some local government determinants are systematically associated with local public service
performance. Local government fiscal capacity and local government spending on health,
education and general administration services are positively correlated with performance.
Likewise, the density of social groups, community participation and access to mass media are
also positively correlated with performance. In contrast, perceived corruption has negative
correlation with local public service performance.

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Table 4 presents regression results of multilevel regression analyses before and after local
government control determinants are included in the model. Model A presents regression
result before local government control determinants are included. All factors loading are
significant in the individual level except for education services (0.419, p<1% for health
services, 0.035, p>10% for education services, and 0.732, p<1% for general administration
services). The results for local government level shows all factors loaded are significant
(0.792, p<1% for health services, 0.257, p<10% for education services, and 0.848, p<1% for
general administration services).

Most of main determinants appear to be significant on local public service performance.

Local corruption and perceived conflict incidence on election are negatively associated with
service improvement (-0.266, p<1%, -0.031, p<10% respectively). Citizen participation in
various community programs improves performance (0.058, p<1%). Local government
transparency as indicated by respondents' knowledge on public dissemination on
development budget makes more likely better service outcomes (0.076, p<1%). Informed
citizen as measured by their access to mass media also significant for local public service
performance (0.050, p<5%). Likewise, the density of social groups matters for local public
service performance (0.396, p<1%). In contrast, political fragmentation is negatively
associated with service performance (-0.257, p<5%). Null findings are found for the rest of
local government determinants.

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Table 4: Results of multilevel regression of local public service performance

Model B presents regression results after all control determinants are included in the model.
The correlation between unobserved or latent local public service performance and all factors
loading becomes all significant. The association of all main determinants on local public

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service performance remains similar. Controlling for individual and local government
determinants, perceived corruption and conflict related to local and national election decrease
service performance (-0.263, p<1% and -0.040, p<5% respectively ). Political fragmentation
remains negatively associated with service performance (-0.149, p<10%). This negative
association may indicate that instead of stiffer political competition, party fragmentation
results in paralysis and dispersion of accountability. Direct local democracy as a mean for
enhancing electoral accountability is positively associated with performance, but the
association appears not significant.

Respondents' knowledge on public dissemination on development budget remains positively

associated with service performance (0.061, p<1%). Better informed citizen as indicated by
adult literacy and higher access of local citizens to various mass media are also positively
associated with service performance. However, the significant association is only shown on
access to mass media (0.055, p<5%). Citizen participation in community programs increases
perceived service performance (0.058, p<1%), while participation in local election is not
(0.005, p>10%). The density of social groups remains significant for service performance
(0.497, p<1%). This finding indicates that households living in the higher density of social
groups perceive better performance of services. In addition, null findings are shown on the
association of public spending, local bureaucracy capacity and leadership on local public
service performance.

Household control determinants show expected results. Older household head tends to
perceive better performance. Female household head perceives better performance than male.
Those living in Eastern part of Indonesia perceive less performance. Other individual socio
demographic determinants are not significantly associated with perceived performance.

The local government variance is significant. This finding indicates that perceived public
services performance varies between local governments. The estimation of variance at local
government level goes some way to ensure that the rest of our estimates (from age to mayor
come from new political party) are robust against unobserved local government
heterogeneities. Furthermore, the two models display good model fit indicators with
CFI >0.90, and RMSEA <0.049 (CFI for model A = 0.939 while for model B = 0.941,
RMSEA for model A = 0.011, while for model B = 0.010).

6. Discussion

This study aims to examine whether transfer responsibilities and resources through
decentralization reform associated with increase local public service performance. Local
public service performance is measured by citizens' perception on three basic public services
sectors: health, education and general administration services. Three hypotheses are proposed
to answer research questions: incomplete accountability hypothesis, management of local
government officials' political incentives hypothesis, and action of citizens and structure of
society hypothesis.

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We improve a number of methodological steps in this analysis. First, we use local

governments as a unit of analysis. This unit of analysis has advantages since such contexts
are considerably more similar within the boundaries of a single country than they are cross
countries. Hence, the effect of decentralization on public service performance may more
salient when we use local government as a unit analysis rather than countries or provinces as
unit of analysis. Second, while existing analyses use individual or aggregate data using
ordinary linear regression we use multilevel analyses address the nested structure of
decentralization reforms and public service performance in local government’s context.
Hence, using multilevel analyses and local government as a unit of analysis, we are able to
control for unobserved heterogeneities between local governments that potentially intrude
with the effect of political decentralization on local government performance. Third, we
employ the multilevel multiple indicator multiple cause model to analyze the nested structure
of local public service and unobserved local public service performance. The results of this
study therefore may be more robust than prior single level studies which often use ordinary
linear regression analyses and factor analyses.

The results confirm that ineffective local political institution for ensuring local political
accountability lead to lack of public service performance. Local public service performance
decreases along with the perception of local conflict on election, local corruption, and
political fragmentation. Local direct democracy as a means for creating political
accountability and leaders’ circulation is also not associated with local public performance.
Reflecting decentralization experiences across new decentralized developing countries, these
results elicit that poorly performing local government is revealed when channels for ensuring
political accountability are not available in local government level. In this case, political
decentralization will increase local corruption rather than strengthen democracy and improve
local public services (Prudhomme, 1995; Litvack, 1998; Crook, 1998; Goldsmith, 1999;
Treisman, 2000; Fisman, 2002). While prior studies found this evidence across developing
countries, our findings show that the negative association between ineffective local political
institutions on local public service performance holds throughout local governments within a
country.

Our results show that the degree of informed citizen and local governments’ transparency are
positively associated with local public service performance. This positive association may
signal that in the lowest structure of government, citizens can better oversee the way local
agencies use public fund and deliver services in daily life. Here, informed citizens and
information dissemination can be understood as channels for improving citizens' political
awareness. By providing information about how government spent their money, local citizens
particularly who have more access to mass media will have opportunities to monitor and to
evaluate local government activities. As Bestley et al. (2002) explain that mass media can
play a key role in enabling citizens to monitor the actions of incumbents by producing and
disseminating information related to government activities to citizens. This can lead to more
accountable and responsive government to its citizens’ needs. Whether or not we can attribute
this effort as a causal chain, between participation and transparency to more accountable local
governments and therefore improved services, can be contested. The results may also be

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driven by other factors. For instance, information dissemination might by itself change
respondents' perceptions of services, simply by providing more information about changes
and improvements in service delivery. The causation between these determinants is beyond
the scope of this study, but an important future area of research.

The results confirm some parts of third hypothesis. We find that informal citizen political
participation and the active social groups in local governments improve local public service
performance. In contrast, formal citizen political participation in local election is not
significantly associated with performance. These findings may indicate that within less
effective local election, participation in community programs is likely more effective to
articulate local citizen voices in policy making to improve performance. The effectiveness of
community participation is also supported from positive association of social groups on
performance. This study shows that respondents living in denser social groups perceive better
performance than those living in less dense social groups.

There is a well established literature on the benefits of individual and community social
capital on development outcomes. Getting citizens involved directly in various community
programs can improve local governments' capacity in providing services. Community
participation could affect this capacity by, for example, providing direct material benefits or
helping to target material resources most efficiently within a community (Fox, 1996; Blair,
2000). Meanwhile, social groups not only can exert pressure on local government to provide
better services, but also can provide models of what kind of services and how improvement
can be made according to local concerns (Heller, 2001). In Indonesian contexts, the positive
association of community participation and social groups for development is documented in
previous studies (Shiffman, 2002; Grootaert, 2002; Sullivan, 1992; Bank, 2003). These
studies show that the involvement of local community volunteers and various social
organizations have become a hallmark of socioeconomic development in the country. In
many instances these organizations began as grassroots initiatives and were subsequently
adopted by higher level of government as regional and national programs (Shiffman, 2002;
Bank, 2003). Hence, our results confirm that the benefits of individual and community social
capital not only limited for improving outcomes of such community programs, but also for
improving local public service performance.

We hope future research will be able to deal with some of limitation on this study. Although
previous studies show that citizens' responses can be used to measure local government
performance, survey responses of citizens may suffer from social desirability bias. For
instance, respondents may be responding in a polite manner to survey questions about
satisfaction, but not in away that necessarily represent their real views. Respondents may also
have low expectations about service delivery, which when compared to actual quality of
service lead to relatively high levels of satisfaction. Moreover, perceived measured is often
affected by determinants unrelated to decentralization performance such as age, gender,
education, income, ethnicity, attitudes and predispositions related to political beliefs or past
experiences. We control this bias by including socio-demographic determinants in the models.
Nevertheless, these issues may still affect the findings. Future anticipated data collection and

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analysis will need to improve measurement for individual localities and provide more
rigorous controls for potential biases on individual satisfaction as a measure of public service
delivery quality, including peer group/expectations effects, as well as actual associations with
objective measures. Furthermore, rather than threat different accountability mechanism as
equally effective given prevailing local service delivery conditions, we suggest that different
accountability mechanism (e.g. bottom-up versus top-down or information/participation
versus sanctions-based mechanism) may be more effective in particular contexts. Increased
evidence on the general, as well as location-specific efficacy of different accountability
mechanisms for public service delivery represents a critical input into the on-going policy
debate about decentralization and service in Indonesia.

While the interpretation of the results should be viewed in light of certain limitations, our
findings have important implications both for the literature and practice of decentralization
and development in developing countries. First, our research show that local government
continued to vary in terms of their service performance and in terms of the extent to which
they took advantage of the opportunities offered by decentralization. While most of prior
studies show that this variation is shown across developing countries or provinces within a
country, this study find that this variation is revealed across local governments within a
country. This finding implies that the call for examining at what scale or arena do researchers
make comparisons. This study suggests that the consequence of decentralization reform on
local government performance is more relevant if we use local governments as a unit of
analysis.

Second, the benefits predicted by proponents of decentralization as consequences of

decentralization provide a palette of possibilities, not of realities. Indeed, this study indicates
that the promises of political decentralization are likely to be realized when channels for
political accountability is existed in local governments. The empirical evidence shows that
the likelihood of citizens are satisfied with public service delivery is associated with
effectiveness of local political institutions, better informed citizen, transparent of local
governments, and citizen political participation. These findings must surely constitute a
conclusion of which local politicians and service providers might usefully take note.

7. Conclusion

The general hypothesis tested in this article is that the variation of local public service
performance within decentralized local government is to significant extent determined by the
effectiveness of local political institutions, better informed citizen and transparency, and
citizen political participation. The results are broadly consistent with the predictions of the
hypothesis. More effective local political institutions, better informed citizen and
transparency, citizen political participation via community programs, and the presence of
social groups in communities are all associated with higher performance. These effects
remain statistically robust across all regression specifications. While we should be cautions in
interpreting the results as causality in the strict sense, they still provide an interesting pattern
that should be addressed in further empirical analysis.

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Poorly performing local public services are often deeply rooted in their political and social
contexts. Local governments often fail to provide better public service when political
accountability is absent due to weak checks and balances, lack of transparency, and weak
electoral incentives. If political accountability is incomplete, decentralization will create
powerful incentives for political and bureaucrat agent to capture local political process and
misallocate public resources. Conversely, better performing local public services are
consistently with higher citizens’ political participation and active social groups within
community which strengthen local government to be responsive and deliver efficient services.
Higher accountability will increase the political costs of inefficient and inadequate public
decisions and, thus, public service performance is likely to improve. This requires a
politically active community that is able to participate in examining accountability.

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