The Link between Road Infrastructure Quality and Fiscal Decentralization: Evidence from Subnational Indonesia

Abstract

The study on road infrastructure and economic development has been widely discussed, but the relationship between road infrastructure and local fiscal decentralization is still limited. Fiscal decentralization is essential for ensuring sustainable public services and fostering economic development. The study enhances the existing literature by identifying the link between infrastructure development and local fiscal decentralization in Indonesia. The estimate employs a panel fixed-effect approach to address the constant unobservable variable bias. The results show that better road quality is positively and significantly associated with local fiscal decentralization. However, the association varies across subsamples, where districts in the Java region have more robust evidence than districts in the non-Java region.