An Inquiry of Optimal Size of Regency Government in Indonesia
The number of local governments grew significantly due to the New Law allowed and relaxed to form new local government. Based on the recent data in 2016, the number of Regency are 416. On the other hand, Central Government faces limited fiscal space due to the increase fund transfer to the local government. The aim of this paper is to calculate optimal size of regency government in Indonesia. The scale effect can be measured from the spending of budget on specific sector such as, health, education and infrastructure on the population, area and population density. Econometric analysis will be conducted to identify whether there is an optimal size of regency government among local governments in Indonesia. The result of this study shows that there is sub-optimal size regency government for government spending health, education and infrastructure based on population. The result also shows that inefficiency exists in government spending. Therefore, quality spending should be improved by amalgamation and reorganizing regency government in providing public services.