Do Smaller Local Governments Bring Citizens More? Evidence from Direct Elections in Indonesia

Jul 19, 2026

Do smaller local governments deliver more benefits to citizens, particularly when paired with mechanisms that hold officials accountable to voters? This paper extends research on local government size by examining direct local elections as a proxy for accountability. Using Indonesian village-level panel outcomes, it finds that smaller local governments increase public good provision, but only in districts with direct elections. It further shows that higher revenue translates into developmental spending only in split districts facing direct elections.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages26

Reading Time1 h 6 min

Introduction

Background: Optimal local government size and theory

Accountability and direct local elections

Institutional context: Indonesia’s decentralization and district splitting

Pub lic Disclosure Authorized Pub lic Disclosure Authorized The World Bank Economic Review, 36(3), 2022, 774–799 [https://doi.org10.1093/wber/lhac010](https://doi.org10.1093/wber/lhac010) Article Do Smaller Local Governments Bring Citizens More? Evidence from Direct Elections in Indonesia Deepak Singhania Abstract Do smaller local governments provide more for their citizens, especially when they are also held accountable to their citizens? This paper extends the empirical literature on the size of local governments by explicitly exploring one of the key influencing factors – direct local elections, a proxy for local accountability. Using an Indonesian panel of village-level outcomes data, the paper shows that a reduction in local government size (due to district splitting) increases public good provision but that this effect is restricted to districts that had direct local elections. It also provides suggestive evidence to show that increased revenue was channeled into developmental expenditures only in those split districts that faced direct elections. The identification strategy relies on a surprise local election announced while the number of local governments in Indonesia was increasing, which also abruptly imposed a moratorium on the process of splitting. JEL classification: H75; O10; H44 Keywords: local government, elections, government size, Indonesia 1. Introduction The debate on the optimal size of local governments dates back to Plato and Aristotle. In the recent times, breakthrough theoretical models by Tiebout (1956) and Oates (1972) have brought these debates to the forefront. They theorize that in the absence of economies of scale, smaller jurisdictions can enjoy the benefits of homogeneous preferences of citizens within jurisdictions. But there is also a trade-off between homogeneous population and the economies of scale that arise due to larger jurisdictions (Alesina and Spolaore 1997), because larger jurisdictions are cost effective in producing many public goods (Hirsch 1959). A smaller-sized local government would be inefficient if it is costly to produce public goods and if it fails to internalize the externalities arising out of neighboring localities. On the other hand, some political scientists suggest that smaller-sized governments can result in increased yardstick competition among local governments leading to better local governance (Myerson 2014; Faguet 2014), and in the presence of accountable institutions, citizens can coordinate locally to penalize their respective local governments Deepak Singhania is an Assistant Professor at the Indian Institute of Technology Gandhinagar, India; his email address is [dbsinghania@gmail.com](dbsinghania@gmail.com); [dbsinghania@iitgn.ac.in. Part](dbsinghania@iitgn.ac.in. Part) of the data used for this study was purchased with student research support funds from the Economics Department at the University of California, Riverside. The author is grateful to his Ph.D. thesis chair Steven Helfand for his continuous support and advice. He would like to thank his committee members Aman Ullah, Anil Deolalikar, and Joseph Cummins, and his mentors, Prasanta Pattanaik and Mindy Marks, for their comments. The paper has benefited substantially from discussions with Rohini Pande and Michael Callen. Comments from the participants at PACDEV 2016, WEAI 2016, SEA 2016, and the Economics Colloquium at UCR have also been helpful. A supplementary online appendix is available with this article at The World Bank Economic Review website. © The Author(s) 2022 . Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: [journals.permissions@oup.com](journals.permissions@oup.com) Downloaded from [https://academic.oup.com/wber/article/36/3/774/6604497 by Sectoral Library Rm MC-C3-220 user on](https://academic.oup.com/wber/article/36/3/774/6

FAQs

What is the main question of the paper?

Whether smaller local governments provide more for citizens, especially when governments are accountable through direct local elections.

What does the paper find about government size and public goods?

Reducing local government size increases public good provision, but the effect is limited to districts that held direct local elections.

How does the paper identify the effects of elections and size changes?

The strategy uses a surprise local election that coincided with rising numbers of local governments and also imposed a moratorium on further splitting.

Jul 19, 2026

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