Assessing the influence of local government capacity on public service delivery: insights from indonesia’s decentralization experience

Abstract

The issue of limited local government capacity has been identified as a major obstacle to effective decentralization, particularly in developing countries. This study examines this challenge within the context of Indonesia, which has undergone extensive administrative, fiscal, and political decentralization over the past two decades. The research aims to empirically assess how local government capacity affects public service delivery under decentralization. Local government capacity is evaluated using a policy capacity framework at the organizational level, encompassing three key dimensions: analytical, operational, and political capacities. Using a panel data regression estimated by the Hausman–Taylor method, the study finds that the interplay among these three capacities positively influences public service delivery. This suggests that these capacities are complementary and jointly enhance local governments’ effectiveness in service provision. While operational capacity, including fiscal resources, has traditionally been emphasized in decentralization design, the findings highlight the importance of also developing political and analytical capacities. These insights support the integration of comprehensive capacity-building efforts in the design and implementation of decentralization programs.