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Spatial Dimensions of Expenditure Inequality in a Decentralizing Indonesia

Publication | April 2017
Spatial Dimensions of Expenditure Inequality in a Decentralizing Indonesia

Up to a quarter of inequality in Indonesia is due to urban–rural gaps.

We analyze spatial dimensions of inequality under decentralization in Indonesia from 1996–2010 using the hierarchical decomposition method. We use household expenditures rather than regional accounts and try to investigate the contributions of spatial inequalities to overall expenditure inequality. We find that urban–rural disparity constitutes 15%–25% of overall expenditure inequality. A large difference exists between urban and rural areas in the magnitude of inequality among districts. After controlling for the urban–rural difference, inequality among districts accounts for 15%–25% of overall inequality. While disparity between five major island regions is almost negligible, inequalities between districts within provinces appear to have played an increasingly important role in both urban and rural areas. Given unequal geographic distributions of resource endowments, public infrastructure, and economic activities, some spatial inequalities are inevitable. Nevertheless, sustained efforts are necessary to reduce spatial inequalities to facilitate national unity, cohesion, and stability. The government needs to accelerate infrastructure development.