111
AND CITIES IN WEST JAVA
Estro Dariatno Sihaloho
Department of Economics, Faculty of Economics and Business, Padjadjaran University Bandung, Indonesia
estro.sihaloho@unpad.ac.id
Abstract
This paper has two objectives. The first is to estimate technical efficiency scores for local government expenditure in regencies and cities in West Java. The second is to analyze the other environmental factors that play an important role in the technical efficiency scores of local gov- ernment expenditure in the same regencies and cities. This research uses a Data Envelopment Analysis (DEA) method to estimate technical efficiency scores and uses a Tobit method for analyzing environmental factors. The DEA method uses capital expenditure per capita, employ- ment of government expenditure per capita, and goods and services expenditure per capita as input and uses Gross Regional Product (GRP) per capita, human capital index (HDI) and road infrastructure length per wide area as output. The Tobit method uses the total of investment credit funds, total labor and total government employment per 1000 civil servants. The results showed that there are many region that have high spending but can not achieved the maximum score of efficiency. The Tobit estimation shows that the total of investment credit funding and total labor have positive and significant marginal effects in creating optimal technical efficiency scores. Total government employment per 1000 civil servants has a negative and insignificant marginal effect on optimal technical efficiency scores.
Keywords: local government expenditure, efficiency, DEA, TOBIT JEL Classification: H72, H76, D61
INTRODUCTION
Any policies followed by local govern- ments will contribute to local and to national economic growth. West Java Province is one of the regions in In- donesia that has an important role in the national economy but West Java’s role has different characteristics from other provinces. In 2010, West Java Province was the third-largest provin- cial contributor to Indonesia’s GDP,
the second largest for total govern- ment spending on regencies and cities in Indonesia for that year, and West Java was the province with the largest population in Indonesia. (BPS, 2011).
These characteristics; that is, the largest population, and the large amount of total government spending for West Java regencies and cities, should make for the highest output and contribution to Indonesia’s GDP.
The basic framework, shown in Figure 1 above illustrates how efficien- cy and effectiveness is a product of the relations between input, output, and outcome. Local governments spend their funds (their inputs) to produce output; the ratio of input to output is a widely used basic measurement of their efficiency. Mandl, Dierx, and Ilzkovitz (2008) explain that a bigger output from a smaller input showed greater efficiency of their activities. Efficiency can be measured as technical efficiency and as price or allocated efficiency (Farrell, 1957). The efficiency measured for this study is technical efficiency because information on input prices is limited.
The allocation of local govern- ment spending was become the big issues in regencies/cities in West Java because most of regencies/cities in West Java spent big share of budget for recurrent expenditure like civil servant Sources: Mandl, Dierx, & Ilzkovitz (2008)
Figure 1. Framework of Efficiency and Effectiveness
expenditure. Larger share for civil servant make the local government spent small share for capital expendi- ture. An increase in government capital spending tends to have large multiplier effect than increase in recurring expen- ditures (Ducanes, Cagas, Qin, Quising,
& Razzaque, 2006).
This research is related to the issues about how the local govern- ment of regencies and cities in West Java allocated the budget. There are some regions that have big budget but just have smaller output than other provinces with smaller budget. The efficiency of public spending can be measured as a difference between the actual spending and the theoretically possible minimum spending that is sufficient to produce the same level of actual output (Esanov, 2009). This research aims to investigate the effect of different rate of capital expenditure to the efficiency rate in each regencies/
cities. Furthermore, this paper provides analysis of the environmental effect of total government employment to efficiency score as well as the effect of investment loan and total labor of regency/city to efficiency score in West Java Province, Indonesia.
LITERATURE REVIEW
Some previous studies focusing on the efficiency are Balaguer-Coll et al.
(2004), Afonso and Scaglioni (2005), Afonso et al. (2006), Jorge et al. (2006), Afonso and Fernandes (2008). All the previous research used Data Envelop- ment Analysis (DEA) to calculate efficiency score of expenditure of government. This research used capital expenditure, employment expenditure and expenditure on goods and services as the input that same as with Balaguer- Coll et al. (2004) that measure the efficiency score of Spanish local gov- ernment. Jorge et al. (2006) also used personnel expenditure, expenditure on good services and capital expenditure to measure Portuguese local govern- ment efficiency.
This research used GRP as out- put same as Afonso et al. (2006) that measure the efficiency of public sector of new members of EU. Same paper also used factors of Human Develop- ment Index as output same as with de Sousa et al. (2005), Jorge et al. (2006), Afonso and Fernandes (2008). One of infrastructure output is road and used as output by de Sousa et al. (2004), Afonso and Fernandes (2008).
Balaguer-Coll et al. (2004) found that capital expenditures will imple-
mented to produce or acquire capital goods such as high number of lighting points, street infrastructure surface area, public buildings surface area.
Higher capital expenditures in large and medium size municipalities create higher average of efficiency in Spanish local government (Balaguer-Coll et al., 2004). The operating expenditure in Portuguese was averaged 57 of total expenditure between 2000 and 2003 but declined to 50% in 2004. The decreasing of operating expenditure has good impact to capital expenditure level. The capital expenditure level was important for Portuguese munici- palities and creates better output and efficiency (Jorge, Camoes, Carvalho,
& Fernandes, 2006). Bigger capital expenditure ratio to total expenditure will have positive effect to efficiency level for Greek local municipalities (Athanassopoulos & Triantis, 1998).
For Tobit analysis, Eeckaut et al.
(1993) measure that high level of tax and high education level of society as environmental factors will have positive impact to efficiency of Belgian Municipalities. On the other hand, the routine expenditure like the high sub- sidies expenditure will cause negative impact to efficiency score (Eeckaut, Tulkens, & Jamar, 1993). Heikki and Ilkka (2005) also found that high level of education will give positive impact to efficiency level. High level of unem- ployment and routine expenditure like subsidies expenditure will give negative impact to the efficiency of Finnish municipalities.
RESEARCH METHODS Data Description
This research focuses on measuring local government spending efficiency and analyzing environmental factors that can increase technical efficiency scores in 17 regencies and nine cit- ies in West Java Province. This study covers the period from 2001 to 2010.
This paper measured all the regions in
Table 1. Summary Statistics for Inputs, Outputs, and Environmental Factors (n=2340)
Source: BPS (2011) & Ministry of Finance (2011)
West Java to compare all regency/city efficiency score. This paper captures the condition of efficiency score of each region before the Ministry of Home Affairs Instruction No. 27 of 2013. The Ministry of Home Affairs Instruction No. 27 of 2013 regulated about 30% of share capital expenditure for every region. Before the regulation, the level of capital expenditure from 2001-2010 was low and have impact to efficiency score.
Inputs Mean Min Max Std.Dev
Capital Exp per Capita (IDR) 96,976.58 2,073.19 846,153.51 106,328.63 Government Emp Exp per Capita (IDR) 324,504.01 58,150.08 3,033,730.94 290,404.99 Good and Services Exp per Capita(IDR) 82,199.97 1,327.95 950,188.26 96,359.47 Outputs
GRP per Capita (Million IDR) 10.95 2.10 103.09 9.65
HDI 70.13 40.70 79.09 4.25
Road Length per region wide 15.24 0.03 3,402.37 215.09
Environmental Factors
Total Loan Fund of Investment (Million IDR) 871.54 1.20 6,525.07 1,449.85
Number of Civil Servant per 1000 Population 9 2 67 5
Total Local Labor (Thousand) 636 36 1,927 400
The variables required for this research are: First, Capital expenditure per capita, government employee expenditure per capita, and goods and services expenditure per capita con- stitute the input; and GRP per capita, human development index, and road length per region constitute the output for efficiency measurement. Second,
the total loan fund for investment, the number of civil servants per 1000 population, and total local labor are environmental factors that can affect the efficiency scores. The source of the data is Central Bureau of Statistics of Indonesia, Central Bureau of Statistics of West Java and Finance Ministry of Indonesia.
Figure 2 shows that more than half the regencies and cities in West Java had an increase in the ratio of government spending to GRP from 2009 to 2010. Some regencies/cities have a larger regional spending to GRP ratio (government size) compared with other regions, for instance, Bandung Regency, Cirebon Regency, Kuningan Regency and Majalengka Regency, but other regions have had only a small increase, and others a decrease. Various levels of local government spending are used to generate optimum economic growth. The efficiency of local govern- ment spending has a great influence on economic growth rates.
Figure 3 shows that there is a negative relationship between Govern- ment Size (ratio between government expenditure to GRP) with the level of local economic growth. The graph shows that most of the regencies/cities with a smaller size of government have a high economic growth while the re- gencies/cities with a large government size have smaller economic growth.
The graph also shows that Sukabumi City (22) with smaller government size in 2010 compare to 2009 has better economic growth. Indramayu Regency (8) also have same pattern, with smaller government size create the better economic growth in 2010.
While Majalengka Regency (11) has bigger government size but has smaller economic growth.
Source: BPS (2011) & Ministry of Finance (2011)
Figure 2. Share of Local Government Expenditures to GRP
Source: BPS (2011) & Ministry of Finance (2011) Figure 3. Government Size and GRP Growth
2a 1a
3a 4a
5a 7a 6a
8a 9a
11a10a
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9b 8b
10b 11b 12b
13b 15b14b 16b 17b
18b 19b
21b 20b
22b
23b 24b
25b
26b
05101520Economic Growth (%)
5 10 15 20 25
Government Size
Fitted values a : 2009 b : 2010
1a
2a
3a
5a4a 6a
7a 8a
9a
10a 11a
12a 13a 14a
15a 16a
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0200004000060000PDRB (Million Rp)
500 1000 1500 2000 2500
Government Expenditure (Million Rp) Fitted values a : 2009 b : 2010
Source: BPS (2011) & Ministry of Finance (2011) Figure 4. Local Government Expenditure and GRP
Figure 4 shows that only a few regencies and cities in West Java with a high level of government spend- ing have a high GRP; many other regencies/cities have a low GRP even though there is a high level of govern- ment spending. Regencies and cities with a low GRP and high government spending are typically below the fitted line. This indicates that the government spending is not being applied efficiently to enable the GRP that should be achieved.
There are several characteristics of the influence of local government spending on GRP in regencies and cities in West Java. Some examples of regencies/cities with different char- acteristics are Bandung Regency (1), Bekasi Regency (2), and Bekasi City (19). Figure 4 shows a big increase in local government spending in Band- ung Regency (1), but the increase in government spending did not boost GRP. Government spending in Bekasi Regency (2) shows a decline, but that decline in government spending was associated with an increased GRP.
Bekasi City (19) shows different char- acteristics from Bandung Regency (1);
Bekasi City had increased government spending and an increase in the GRP.
These three regions characterize all possibilities for the entire set of regen- cies and cities in West Java and show that increases in government spending do not always boost GRP significantly.
These differences can result from the influenced of many factors. The al- location of local government spending could be a determinant that encourages optimal economic growth.
Data Envelopment Analysis
Data envelopment analysis (DEA) is a form of measurement analysis that is used to evaluate the relative efficiency of a set of decision making units (DMU) in managing resources (inputs) to produce the maximum result (out- put). DEA can also be an optimization method of mathematical programs that can measure and compare the effi- ciency of one DMU relative to another.
Efficient DMUs are used as a reference benchmark for inefficient DMUs.
DEA is a non-parametric linear programming technique “designed to calculate relative efficiency based on the sample countries’ efficient produc- tion frontier” (Casu & Molyneux, 2003). As described by Casu and Molyneux, the DEA measurement of efficiency is a method that measures the non-parametric boundary lines of production (frontier). With the non-parametric condition, the DEA method requires fewer assumptions and also can use fewer samples. DEA will identify the units that will be evalu- ated, the inputs and outputs. DEA will calculate the value of productivity and identify the unit used as a reference that can help to find a solution to reduce inefficiency. This study used a system consisting of multiple input and output variables that, in turn, comprise several variables as well. Thus it can be seen how the overall inputs will affect the various outputs measured, which is an indicator of the success of economic development. This research used STATA 11 for the DEA:
constant returns to scale. For example, x proportion of input will not always produce x proportion of output. This depends on the ability of regions in allocating and managing input. VRS shows there are some regencies and cities in West Java that use x proportion of input and produce less or more than x proportion of output.
Tobit Analysis
Tobit analysis is “a model devised by Tobin (1958) in which it is assumed that the dependent variable has a
Max θ (1)
Subject to :
Source: Banker , Charnes, & Cooper (1984) The DEA process show that θ is the efficiency score with value 0< θ <1. Xi0 and Yr0 are the ith input and rth output for DMU and j = 1, 2…n represents the number of DMUs (Chan & Karim, 2012). For data processing, the selected regencies and cities in West Java are classified as deci- sion making units (DMU). A “DMU would reflect both its own priorities over its outputs and the environment in which it operates” (Thanassoulis, 1996). DMUs will be compared by us- ing the inputs and outputs for each pe- riod. The classification as DMUs, DEA will facilitate measurements that show the level of output in the environment in which the DMU operates.
In the DEA, there are two com- mon methods used in a variety of ways to measure efficiency. There are con- stant returns to scale (CRS) and vari- able returns to scale (VRS). The use of both methods, that is, CRS and VRS, will have different characteristics. This study uses VRS because of the vari- ous inputs over the entire area of the regencies and cities in West Java; not all areas can produce outputs that are (2) (3) (4)
Table 2. Decision Making Unit (DMU)
DMU Regency/City
1 Bandung Regency 2 Bekasi Regency 3 Bogor Regency 4 Ciamis Regency 5 Cianjur Regency 6 Cirebon Regency 7 Garut Regency 8 Indramayu Regency 9 Karawang Regecny 10 Kuningan Regency 11 Majalengka Regency 12 Purwakarta Regency 13 Subang Regency 14 Sukabumi Regency 15 Sumedang Regency 16 Tasikmalaya Regency 17 West Bandung Regency 18 Bandung City
19 Bekasi City 20 Bogor City 21 Cirebon City 22 Sukabumi City 23 Tasikmalaya City 24 Cimahi City 25 Depok City 26 Banjar City
number of its values clustered at a limiting value” (McDonald & Moffitt, 1980). “The use of censored regression techniques is appropriate for this two- step analysis since the efficiency scores, the dependent variable, are observed in only a certain range: in our case assum- ing a maximum value of 1” (Ruggiero, 2004). Tobit regression can use data with zero value (discrete) and continu- ous data. Afonso and Fernandes evalu- ate the importance of environmental or non-discretionary inputs by Tobit estimations “by regressing the output efficiency scores on a set of possible explanatory variables” (Afonso & Fer- nandes, 2008). The Tobit regression model in this paper:
θ
i= β
0+ β
1Cred_Inv
i+ β
2Lab
i+ β
3Emp
i+ μ
iThe model show that θ is the efficiency score of local government expenditure with range 0 and 1. Cred Inv is the total loan fund of invest- ment, Lab is the total local labor for each region, and Emp is the number of civil servant per 1000 population.
RESULTS AND DISCUSSION The number of regencies/cities that can be compared over the decade from 2001 until 2010 is not constant because there are some regencies and cities founded or formed in or after 2001. A new region is Tasikmalaya City, which was promulgated on 21 June 2001, as
was Cimahi City on 21 June 2001, Ban- jar City on 1 December 2002 and West Bandung Regency on 2 January 2007 (BPS West Java, 2011). This means the number of regencies/cities being compared as DMUs in 2001 was 22, in 2002 it was 24, from 2002 to 2006 it was 25, and from 2007 to 2010 it was 26.
DEA Result
DEA results show that the average scores for the efficiency of regencies and cities in West Java did not always show an increase from 2001 to 2010.
Table 3 shows variations in efficiency of the regencies and cities in West Java.
In 2001, the average efficiency of gov- ernment spending was 0.8612. There were 13 regencies with efficiency scores above the average, and one city and eight regencies with efficiency scores below average. In 2001, Purwakarta Regency had the lowest efficiency with a score of 0.4882.
In 2002, the average efficiency score decreased to 0.8047. The table also shows that 13 regencies had ef- ficiency scores above the average, and two cities and nine regencies had ef- ficiency scores below average. In 2002, Sumedang Regency had the lowest efficiency score (0.472).
Table 3. Efficiency Score of Regencies/Cities in West Java, 2001-2010
Regency/City 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Bandung regency 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.926 Bekasi regency 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Bogor regency 1.000 0.838 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Ciamis regency 0.732 0.583 0.625 0.885 0.986 0.589 0.586 0.666 1.000 1.000 Cianjur regency 1.000 0.890 0.705 0.903 0.924 0.746 0.782 0.761 0.928 0.850 Cirebon regency 1.000 0.929 0.682 0.879 0.906 0.705 0.837 0.816 0.940 0.860 Garut regency 0.861 0.686 1.000 0.868 0.801 0.752 0.740 0.718 1.000 1.000 Indramayu regency 0.763 0.808 0.615 0.848 1.000 1.000 0.899 0.917 0.979 1.000 Karawang regency 0.662 0.676 0.724 0.936 0.895 0.911 1.000 0.862 1.000 1.000 Kuningan regency 0.638 0.483 0.453 0.617 0.689 0.539 0.598 0.797 1.000 0.588 Majalengka
regency 0.940 0.688 0.566 0.702 0.796 0.560 0.532 0.504 0.709 0.596 Purwakarta regency 0.488 0.513 0.673 0.629 0.877 0.664 0.728 0.632 0.658 0.548 Subang regency 0.591 0.595 0.647 1.000 0.728 0.542 0.567 0.587 0.800 0.786 Sukabumi regency 1.000 1.000 0.845 1.000 1.000 1.000 0.938 1.000 0.982 0.846 Sumedang regency 0.628 0.472 0.423 0.640 0.561 0.487 0.603 0.594 0.749 1.000 Tasikmalaya
regency 1.000 1.000 1.000 1.000 1.000 0.810 0.791 0.807 1.000 1.000 West Band-
ung regency 0.000 0.000 0.000 0.000 0.000 0.000 1.000 1.000 1.000 0.917 Bandung City 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Bekasi city 1.000 1.000 0.899 1.000 1.000 1.000 1.000 0.925 1.000 0.799 Bogor city 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Cirebon city 1.000 1.000 1.000 1.000 1.000 1.000 1.000 0.380 0.750 1.000 Sukabumi city 0.645 0.620 0.394 1.000 0.429 0.345 0.373 0.333 0.446 0.647 Tasikmalaya city 0.000 0.533 0.699 0.666 0.610 0.520 0.534 0.480 0.810 0.941 Cimahi city 0.000 1.000 1.000 0.636 0.578 0.773 0.624 0.578 0.637 1.000 Depok city 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 Banjar city 0.000 0.000 0.453 0.517 0.425 0.320 0.312 0.266 0.366 0.617
Source: DEA Result, STATA 14
In 2003, the average efficiency score decreased again to 0.7761. Table 3 shows that 12 regions had efficiency scores above the average and three cities and ten regencies were below average. In 2003, the regency/city with
the lowest efficiency score is Sukabumi City with 0.3937. In 2004, the average score for efficiency increased to 0.8690.
The table shows that 14 regions had ef- ficiency scores above the average and three cities and eight regencies were
below average. In 2004, the regency/
city that had the lowest efficiency score is Banjar City with 0.5168.
In 2005, the average score for ef- ficiency decreased to 0.8481. The table shows that 16 regions had efficiency scores above the average and four cities and five regencies that are below average. In 2005, the regency/city with the lowest efficiency score is Banjar City with 0.4252. In 2006, the average score decreased to 0.7711. The table shows that 13 regions had efficiency scores above average and there are three cities and nine regencies with ef- ficiency scores below average. In 2006, the regency/city that has the lowest efficiency score is the Banjar City with 0.32014.
In 2007, the average efficiency score increased to 0.7863. Table 3 shows that 14 regions had scores above average and four cities and eight regen- cies were below average. In 2007, the regency/city with the lowest efficiency score was Banjar City with 0.3115. In 2008, the average score fell to 0.7546.
The table shows that 14 regions were above the average and there were five cities and seven regencies below aver- age. In 2008, the regency/city that had the lowest efficiency score was Banjar City with 0.2657.
In 2009, the average efficiency score rose to 0.8750. Seventeen regions had efficiency scores above the average and there were five cities and four re- gencies that had scores below average.
In 2009, the regency/city with the lowest efficiency score is Banjar City with 0.3660. In 2010, the average score
increased to 0.8963. The table shows that 16 regions had efficiency scores above the average and two cities and seven regencies scored below average.
In 2010, the regency/city which had the lowest efficiency score is Purwa- karta Regency with 0. 5477.
Table 4. Average Efficiency Score
Regency/City Average
Bandung regency 0.993
Bekasi regency 1.000
Bogor regency 0.984
Ciamis regency 0.765
Cianjur regency 0.849
Cirebon regency 0.855
Garut regency 0.843
Indramayu regency 0.883
Karawang regency 0.867
Kuningan regency 0.640
Majalengka regency 0.659 Purwakarta regency 0.641
Subang regency 0.684
Sukabumi regency 0.961
Sumedang regency 0.616
Tasikmalaya regency 0.941 West Bandung regency 0.979
Bandung City 1.000
Bekasi city 0.962
Bogor city 1.000
Cirebon city 0.913
Sukabumi city 0.523
Tasikmalaya city 0.579
Cimahi city 0.758
Depok city 1.000
Banjar city 0.457
Source: DEA Result, STATA 14
Table 4 shows that there are four regencies/cities with an average ef- ficiency score of 1. These are Bekasi Regency, Bandung City, Bogor City and Depok City. There are seven other regencies/cities with average efficiency above 0.9: Bandung Regency, Bogor Regency, Sukabumi Regency, Tasikma- laya Regency, West Bandung Regency, Bekasi City and Cirebon City. The regencies/cities with the lowest average efficiency scores have an average under 0.7 and there are eight of these: Kun- ingan Regency, Majalengka Regency, Purwakarta Regency, Subang Regency, Sumedang Regency, Sukabumi City, Tasikmalaya City and Banjar City. The regency/city that has the lowest aver- age efficiency score is Banjar City with 0.457383. This is because the allocation of regional spending did not create an optimum output of economic indicator in Banjar City. Banjar City was formed in 2002 and has the smallest GRP of all regencies/cities in West Java. The table also shows that new regencies/
cities, like Cimahi City and Tasikmalaya City, that were formed in 2001 also have smaller average efficiency scores than other regencies/cities.
The regencies and cities near Jakarta, the capital city of the Republic of Indonesia, have high efficiency values compared with other, more distant, regions. The regions adjacent to Jakarta, like Bekasi Regency and Depok City, had efficiency scores of 1 and Bekasi City had an efficiency score of 0.9623. Other areas close to
Jakarta, Bogor Regency, Bogor City, and Karawang Regency also had good efficiency scores. The regencies/cities that have output indicators better than other regencies/cities are those better at allocating inputs. The data show that most of these regencies/cities allocate a bigger share of their budgets to capital expenditure than do other regencies/cities and, consequently, produce better outputs. For example, Bekasi Regency has a share of 0.33 per cent average capital expenditure, Bekasi City has a share of 0.28 per cent average capital expenditure, and Depok City has a share of 0.29 per cent aver- age capital expenditure.
Figure 5 shows the relation between efficiency score data from all regencies/cities (2001-2010) with regard to their local government ex- penditure. The figure shows that most of the region with the expenditure level does not reach the maximum score of efficiency. There are some regions with larger expenditure have small score of efficiency.
The number of regencies/cities from 2001 to 2010 with efficiency scores lower than 0.6 tend to fluctuate.
For example, there were two regencies/
cities in 2001, increased to eight regen- cies/cities in 2006, and decreased to three regencies/cities in 2010, which had score lower than 0.6. The lowest score of efficiency was 0.265765 and the maximum score was about 1 with standard deviation was approximately 0.201731 during the period 2001-2010.
Tobit Result
There are other environmental factors that can affect the efficiency level of local government spending in the regencies and cities of West Java. The use of Tobit analysis will provide rec- ommendations on the use of particular environmental factors.
Table 5. Tobit Result
dy/dx Std. Err. z P>|z|
Emp -.000181 .000710 -0.2 0.799 Lab .0000316 .000010 2.99 0.003 Cred_Inv .0000101 .000002 3.57 0.000
Source: Tobit Estimation, STATA 14 The Tobit estimation results in Table 5 show the influence of en- vironmental factors that shaped the
marginal effects on local government spending efficiency scores. There are 4 variables to estimate the Tobit with 1 dependent variable (efficiency score) and 3 independent variables (the total loan fund of investment, the total lo- cal labor for each region, the number of civil servant per 1000 population).
There are 260 observation with R2 about 30.76. Based on the table, it can be shown that:
1. Emp, which represents the num- ber of civil servants per 1000 inhabitants in the regency/city in West Java, has a negative marginal effect. The figure of -0.000181 indicates that an increase of one civil servant will decrease local Source: DEA Result, STATA 14
Figure 5. Efficiency Score and Local Government Expenditure
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.4.6.81Efficiency Score
0 500 1000 1500 2000
Local Government Expenditure (Billion IDR)
1=2001 2=2002 3=2003 4=2004 5=2005 6=2006 7=2007 8=2008 9=2009 10=2010
government spending efficiency by a factor of 0.000181.
2. Lab, which is the number of people working in each regency/
city or area in West Java, has a positive marginal effect. The figure of 0.0000316 shows that every increase by one thousand in the number of people working in the regency/city will lead to an increase in the efficiency by about 0.0000316.
3. Cred_Inv, which is the amount of credit funding that is used for investment by the private sec- tor in each regency/city in West Java, has positive marginal effect.
The figure 0.0000101 shows that every IDR1 billion increase in the amount of credit investment would lead to an increase in efficiency of 0.0000101.
CONCLUSION
The analysis of local government expenditure, as the input in the DEA process, shows that most regencies and cities in West Java spend most their budgets on government employees and tend to allocate very little to capital expenditure. Local governments should allocate more to capital expenditure to get optimal economic growth rates.
There are some regencies/cities that have average capital expenditure alloca- tions (from 2001 to 2010) close to 30 per cent, for instance, Bekasi Regency, Depok City, Bekasi City, Bogor City and others. The average efficiency score for these regencies/cities was better than most others with an average
score for Bekasi Regency, Depok City, and Bogor City of 1 and for Bekasi City the average score was 0.9623.
Over ten years, Kuningan Regency has had just a 0.11 per cent average of capital expenditure share, Sumedang Regency just 0.12 per cent, and Tasik- malaya City also just a 0.13 per cent average of capital expenditure share.
These regencies/cities are just some examples of the many other regen- cies/cities that spend little for capital items. The average efficiency scores, of 0.640 for Kuningan Regency, 0.616 for Sumedang Regency, and 0.579 for Tasikmalaya City, are also smaller than other regencies/cities. As these examples show, the central government and provincial governments must push and give every encouragement to re- gency and city government to allocate a bigger part of their budgets for capital expenditure.
For budget allocations that are not fully effective, the central government must ensure that local governments al- locate more of their budget to capital expenditure if the central government grants funding to regencies and cities in West Java from the General Allocation Fund (DAU) or the Special Allocation Fund (DAK).
From the Tobit regression, re- gency and city governments must try to not increase the number of govern- ment employees. Finding the money to pay the salaries of more government employees will cause financial burdens.
The allocation of expenditure on government employees will increase and one consequence is that local
governments must then reduce their budget for capital expenditure. The government also must encourage the banks and the private sector to use more credit funding for investment.
More credit funding for investment will increase the building of infrastructure by the private sector and this, in turn, will boost economic growth in regen- cies/cities. The new investment also will open opportunities for new jobs.
Local government expenditure is also inefficient because the government must allocate funding from the budget to help society’s poor and unemployed.
New investment and new jobs will make society better off.
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