Applying Punctuated Equilibrium Theory to Understand Indonesian Fiscal Decentralisation Policy Reform

Written by: Farisa Noviyanti

A. Introduction

Punctuated Equilibrium Theory (PET) portrays an essential feature of agenda-setting theory in policy-making that links the missing element of incremental theory. It is characterised by two contradictory features: equilibrium and punctuation. In PET, policy processes change in slow-moving processes for an extended period of stability, but frequently significant change occurs in a short period (Baumgartner & Jones, 1993). The theory demonstrates how governments process information that might influence how they react to address some issues. Besides, the elements of an organisation can cause friction among key stakeholders that can affect dramatic change and break down the status quo (Jones & Baumgartner, 2005). While it was initially developed to explain changes in legislation in the United States, PET was established as a general empirical law of the public budget and expanded to analyse budgetary changes in various countries (Baumgartner et al., 2017; Jones et al., 2009).

Reflecting on PET as theoretical background, Indonesia has established a modest change in fiscal decentralisation policy for two decades with the increasing annual allocation of transfer funds provided to local governments. Consequently, this pattern has led to a high portion of transfer funds accounting for around 50 percent of total government spending in 2020 (Ministry of Finance of the Republic of Indonesia, 2023). However, the impacts of the policy are still less than sufficient (Lewis, 2023). Thus, since 2021, after the COVID-19 pandemic, Indonesia has been implementing a significant change in fiscal decentralisation policy, reflected in a decline in transfer fund growth and the switch from proportional allocation to performance policy (Fiscal Policy Agency of the Republic of Indonesia, 2021). This change is followed by the creation of Law No. 1 of 2022 as the new framework of Indonesian fiscal decentralisation policy (Chatta et al., 2023).

Furthermore, based on this case, this paper will first identify policy problems, critical actors involved, and solutions undertaken by the central government to address the problems. In the next section, this paper will discuss the concepts of incrementalism and PET to analyse fiscal decentralisation and budgetary change. Finally, this paper will explore challenges in using PET to understand Indonesia's fiscal decentralisation policy reform.

Full Article :