THE IMPACT OF ASYMMETRIC FISCAL DECENTRALIZATION ON EDUCATION AND HEALTH OUTCOMES: EVIDENCE FROM PAPUA PROVINCE, INDONESIA

This study examines the causal effect of asymmetric fiscal decentralization on education and health outcomes in Papua Province, Indonesia, from 1994 to 2016, using the Synthetic Control Method (SCM). The counterfactual series of this study is constructed by using a synthetic control unit deriving data from 21 provinces in Indonesia. It is found that the asymmetric fiscal decentralization which started with the enactment of Law No 21 as of 2001 on Special Autonomy for the Papua Province has negative effects on education and health outcomes in Papua. It is also observed that the outcome gap between the treatment unit and the synthetic control unit also grows over time. Thus, this paper concludes that asymmetric fiscal decentralization is ineffective as evidenced by education and health outcomes in Papua. This paper makes a valuable contribution to the empirical literature on the macroeconomic effects of asymmetric fiscal decentralization. While fiscal decentralization has positive impacts on education and health outcomes in most literature, this paper shows adverse results for the case of Papua Province.