An Analysis of The Flypaper Effect and Its Implications for The Fiscal Behaviour of District and City Governments in North Sulawesi Province:

Krest Donald Tolosang; Tri Oldy Rotinsulu; George M.V.Kawung; Agnes L.Ch. Lapaian

doi:10.63922/ijebir.v5i04.4430

Krest Donald Tolosang Faculty of Economics and Business Sam Ratulangi University Manado
Tri Oldy Rotinsulu Faculty of Economics and Business Sam Ratulangi University Manado
George M.V.Kawung Faculty of Economics and Business Sam Ratulangi University Manado
Agnes L.Ch. Lapaian Faculty of Economics and Business Sam Ratulangi University Manado

DOI: https://doi.org/10.63922/ijebir.v5i04.4430

Keywords: Keywords : Flypaper Effect, Local Revenue, Transfer Funds, Local Expenditure, Fiscal Behaviour, Local Government, North Sulawesi

Abstract

This study aims to analyse the flypaper effect and its implications for the fiscal behaviour of district and municipal governments in North Sulawesi Province. The flypaper effect describes a situation where local government expenditure is more responsive to transfer funds from the central government than to local revenue. This study employs a quantitative panel data approach using local government financial records for the years 2022–2024, sourced from budget implementation reports. The variables analysed include local own revenue, transfer funds and local government expenditure. The analysis method used is multiple linear regression for panel data. The results indicate that transfer funds from the central government have a more dominant influence on local government expenditure than local own revenue, suggesting that the flypaper effect is still occurring in districts and municipalities in North Sulawesi Province. This situation reflects that local governments remain dependent on transfer funds to finance public expenditure, whilst the contribution of local own revenue to local expenditure is relatively smaller. Furthermore, the fiscal behaviour observed indicates a tendency towards low fiscal autonomy, the presence of moral hazard in the management of local revenue, and the potential for inefficiency in budget expenditure. The implications of these findings suggest that fiscal dependence on the central government remains quite high, making local areas vulnerable to changes in fiscal transfer policies. Therefore, efforts are needed to enhance fiscal autonomy through the optimisation of local revenue, the strengthening of local financial management capacity, and the improvement of the efficiency and effectiveness of local expenditure to achieve more autonomous and sustainable financial governance.

References

REFERENCES

Armawaddin, M., Rumbia, W. A., & Afiat, M. N. (2018). Analysis Of The Flypaper Effect In Regional Expenditure In Regencies And Municipalities In Sulawesi. Indonesian Journal of Economics and Development, 18(1), 77–91. https://doi.org/10.21002/jepi.v18i1.773

Armadani, F., & Maryono. (2022). Analysis Of The Flypaper Effect On Local Government Expenditure In Regencies And Cities In Central Java Province For The Period 2017–2019. Fair Value: Scientific Journal of Accounting and Finance, 4(8), 3491–3499.

Citra, C. K. B., & Jatmiko, B. (2017). Analysis Of Factors Influencing The Occurrence Of The Flypaper Effect On Local Government Expenditure (An Empirical Study Of Regency And City Governments In The Special Region Of Yogyakarta, 2010–2016). Indonesian Accounting and Business Review, 1(2), 123–138. https://doi.org/10.18196/rab.010211

Dewi, N.A.W.T., Dewi, L.G.K., Wiguna, I.Gd.N.H., (2024) Analysis of the Flypaper Effect and Its Implications for Regional Fiscal Autonomy: The Moderating Effect of Taxation Efforts. Research Journal ISSN 2088-3382, E-ISSN 2443-0641 Vol. 14 No. 1 March 2024.

Dewi, S. R. (2017). The Flypaper Effect, Local Own-Source Revenue (PAD), General Allocation Fund (DAU), And Special Allocation Fund (DAK) On Local Expenditure In Regencies/Cities In Indonesia. Journal of Accounting Science, 1(2), 155–170. https://doi.org/10.21070/jas.v1i2.956.

Dewi, R. (2021). The Influence Of Local Revenue, General Allocation Funds, And Special Allocation Funds On Local Government Expenditure And An Analysis Of The Flypaper Effect In Districts And Cities In Indonesia. Journal Of Accounting And Information Systems (JAS), 2(2), 138–151.

Halim, Abdul (2020). Public Sector Financial Management: Problems With Government Revenue And Expenditure. Jakarta: Salemba Empat.

Inman, Robert P. (2008). The flypaper effect. National Bureau of Economic Research Working Paper Series, No. 14579. Cambridge, MA: National Bureau of Economic Research.

Inayati, N. I., & Setiawan, D. (2017). The flypaper effect phenomenon in regional expenditure of regencies and cities in Indonesia. EKUITAS: Journal of Economics and Finance, 1(2), 220–239. https://doi.org/10.24034/j25485024.y2017.v1.i2.2062.

Juniartha, R.I.D., Nabila, S.K.M., Pribandari, W.A., Ulandari, W., Ardhiarisca, O., (2025) The Flypaper Effect on Regional Expenditure in Regencies and Municipalities of East Java Province, Scientific Journal of Economics, Business Management and Accounting Vol. 2, No. 3, May 2025. e-ISSN: 3047-7603, p-ISSN: 3047-9673, pp. 261–274 DOI: https://doi.org/10.61722/jemba.v2i3.923.

Kusumadewi, D. A., & Rahman, A. (2007). The flypaper effect of the General Allocation Fund (DAU) and Local Own-Source Revenue (PAD) on local government expenditure in districts and cities in Indonesia. Indonesian Journal of Accounting and Auditing, 11(1), 67–80.

Kuncoro, Mudrajad (2014). Regional autonomy: Towards a new era of regional development (Revised edition). Jakarta: Erlangga.

Michael C. Jensen, M. C., & William H. Meckling, W. H. (1976). Theory of the firm: Managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X.

Marbun, R.M., Purbariani, I.A., Bisai, C.M., (2016). Analysis of the Flypaper Effect in Local Governments in Papua Province. Journal of Economic and Development Studies, Volume 3, No. 1, April 2016.

Niskanen, William A. (1971). Bureaucracy and representative government. Chicago: Aldine Atherton.

Oates, Wallace E. (1979). Lump-sum intergovernmental grants have price effects. In Peter Mieszkowski & William H. Oakland (Eds.), Fiscal federalism and grants-in-aid (pp. 23–30). Washington, DC: The Urban Institute.

Puviani, Amilcare. (1903). Teoria della Illusione Finanziaria. Palermo: Sandron.

Rosen, Harvey S., & Gayer, Ted (2014). Public finance (10th ed.). New York: McGraw-Hill Education.

Septianingrum, N. A., Halim, A., & Utami, T. P. (2025). Local expenditure financing response in regencies and municipalities in Indonesia: Analysis of the flypaper effect phenomenon. Journal of Accounting and Investment, 26(1), 1–17. https://doi.org/10.18196/jai.v26i1.23983.

Wagner, Richard E.. (1976). Revenue structure, fiscal illusion, and budgetary choice. Public Choice, 25(1), 45–61.

Wiwin Anggriani Salawali, Paulus Kindangen, & Agnes C.H. Lapian. (2019). The flypaper effect on the General Allocation Fund (DAU) and Local Own-Source Revenue (PAD) and its impact on district/municipal expenditure in Central Sulawesi. Journal of Regional Economic and Financial Development, 18(2), 20–39. https://doi.org/10.35794/jpekd.12790.18.2.2016.

Wulandari, N. (2024). The flypaper effect phenomenon in 62 underdeveloped districts in Indonesia. Jurnal Ekonomi: Journal of Economic, 15(1), 1–15.

Yacoub Y., Lestari., N (2019) The Flypaper Effect in Indonesia: The Case of Kalimantan GATR Journal of Finance and Banking Review Journal homepage: www.gatrenterprise.com/GATRJournals/jfbr_issues.htmlJ. Fin. Bank. Review 4 (4) 116–121 (2019).

------------------------------

An Analysis of The Flypaper Effect and Its Implications for The Fiscal Behaviour of District and City Governments in North Sulawesi Province

Fly Paper in District and City Governments in North Sulawesi Province 2022-2025

Abstract

References