Can Re-election Strengthen the Relationship Between Local Government Spending and Financial Performance?

Abstract

The purpose of this study is to examine the effect of local government spending on local government financial performance. Furthermore, this study also investigates the moderating role of re-election on the relationship between local government spending and the financial performance for all local government and dynastic local government. The hypotheses are analyzed using multiple regression with fixed effect using two groups of samples: all local governments and dynastic local governments from 2010 to 2015. The result shows that local government spending positively affects local government financial performance, but in dynastic local government, spending has negative effect on financial performance. Moreover, this study proves that re-election strengthens the positive effect of local government spending on local government financial performance in all sample and weaken the negative effect of spending on financial performance in dynastic local government. The finding of this study is very useful for the central government in terms of policy formulation and mechanisms to limit the practice of political dynasty.

Citation

Saragih, H.A. and Setyaningrum, D. (2021), "Can Re-election Strengthen the Relationship Between Local Government Spending and Financial Performance?", Barnett, W.A. and Sergi, B.S. (Ed.) Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics (International Symposia in Economic Theory and Econometrics, Vol. 28), Emerald Publishing Limited, Leeds, pp. 69-82. https://doi.org/10.1108/S1571-038620210000028005