Do Smaller Local Governments Bring Citizens More? Evidence from Direct Elections in Indonesia

Abstract

Do smaller local governments provide more for their citizens, especially when they are also held accountable to their citizens? This paper extends the empirical literature on the size of local governments by explicitly exploring one of the key influencing factors – direct local elections, a proxy for local accountability. Using an Indonesian panel of village-level outcomes data, the paper shows that a reduction in local government size (due to district splitting) increases public good provision but that this effect is restricted to districts that had direct local elections. It also provides suggestive evidence to show that increased revenue was channeled into developmental expenditures only in those split districts that faced direct elections. The identification strategy relies on a surprise local election announced while the number of local governments in Indonesia was increasing, which also abruptly imposed a moratorium on the process of splitting.