Use of Public Funds and the Flypaper Effect: Analysis of Regional Expenditure in Four Indonesian Provinces
Nanang Rusliana (1*), Raisa Hillia Aini Syifa (2), Dyah Ciptaning Lokiteswara Setya Wardhani (3)

1 Siliwangi University, Tasikmalaya, Indonesia
2 Cipasung University, Tasikmalaya, Indonesia
3 STIE Latifah Mubarokiyah, Tasikmalaya. Indonesia

Abstract

This study aims to analyze use of public funds and impact of the Flypaper Effect on regional spending in Indonesia^s four newly expanded provinces. The Flypa-per Effect refers to phenomenon where transfers of funds from central govern-ment to regions tend to be higher than amount that should be received based on local conditions. This study involves four newly created provinces, namely West Papua, Gorontalo, North Maluku and West Sulawesi. Research method used is secondary data analysis, with data collected from various sources related to re-gional spending and transfers of central government funds. Analytical approach used panel regression and other statistical tests to identify the relationship be-tween the use of public funds and the Flypaper Effect in the four provinces. The results showed Flypaper Effect phenomenon only occurs in the Provinces of West Papua and Gorontalo. Meanwhile, in North Maluku and West Sulawesi, the Flypaper Effect phenomenon did not occurs. This research provides important in-sights regarding public fund management policies and budget allocations at the regional level. The government needs to improve the fund transfer system and strengthen regional capacity in managing public finances can be important steps to reduce the dependence of provinces on funds from the central government.

Keywords: use of public funds, Flypaper Effect, local spending, Indonesian province, trans-fer of funds, public finance

Topic: Financial Management and Accounting