Budget Ratcheting in Indonesia and The Implementation of Performance-Based Budgeting System During Pandemic Budget Ratcheting in Indonesia and The Implementation of Performance-Based Budgeting System During Pandemic
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Published:
May 1, 2020
Keywords:
performance-based, ratcheting, reallocation, pandemic
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Computer Science
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Abstract
In Indonesia, the regulation emphasizes the implementation of a performance-based budgeting system. However, the implementation of this system is questioned as the ratcheting effect tends to occur in the budgeting process in local government. The inefficiency that arises due to the occasion should be reduced by transforming it into the performance-based system, especially when a pandemic occurs. Reallocation of budget produced by incremental-line system should be implemented to minimize the risk of the pandemic on social welfare. The data used in this model are APBD data in 2013-2108 from the Ministry of Finance. Regression models and study literature are used in this study to identify the budget ratcheting that occurred in Indonesia and examine the implementation of performance-based budgeting that can reduce the occurrence of government budget behavior bias in the form of a ratchet effect when a pandemic occurs. The result of this study shows that there is an indication of the existence of asymmetric ratchet. As it may lead to inefficiency, to face a pandemic situation, the government should conduct performance target adjusting and program restructuring by reallocating the budget.
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Arsani, A. M. and Sihombing, P. R. (2020) “Budget Ratcheting in Indonesia and The Implementation of Performance-Based Budgeting System During Pandemic: Budget Ratcheting in Indonesia and The Implementation of Performance-Based Budgeting System During Pandemic”, Jurnal Mantik, 4(1), pp. 172-180. Available at: https://iocscience.org/ejournal/index.php/mantik/article/view/726 (Accessed: 28May2026).
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[4] Baldwin, R., Weder, B., & Mauro, D. (2020). Economics in the Time of COVID-19. Retrieved from www.cepr.org
[5] Barrow, L., & Rouse, C. E. (2004). Using market valuation to assess public school spending. Journal of Public Economics, 88(9–10), 1747–1769. https://doi.org/10.1016/S0047-2727(03)00024-0
[6] Barshay, S. A., Karp, B. S., McLoughlin, J. M., Weiss, P., Rifkind, Wharton, & Garrison. (2020). The Impact of COVID-19 on Performance-Based Compensation Programs. https://doi.org/10.1002/tect.20013
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[8] Blais, A., & Dion, S. (1990). Are bureaucrats budget maximizers? The Niskanen model & its critics. Polity, 22(4), 655–674.
[9] Blöndal, J. R., Hawkesworth, I., & Choi, H. D. (2009). Budgeting in Indonesia. OECD Journal on Budgeting, 9(2), 1–31. https://doi.org/10.1787/budget-9-5ks72wv89p48
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[11] Eichenbaum, M. S., Rebelo, S., & Trabandt, M. (2020). THE MACROECONOMICS OF EPIDEMICS. In NBER WORKING PAPER SERIES (Vol. 26882). https://doi.org/10.1017/CBO9781107415324.004
[12] Guerrieri, V., Lorenzoni, G., Straub, L., & Werning, I. (2020). Macroeconomic Implications of COVID-19?: Can Negative Supply Shocks Cause Demand Shortages?? Retrieved from https://economics.mit.edu/files/19351
[13] Halim, A., & Abdullah, S. (2006). Hubungan Masalah Keagenan Di Pemerintah Daerah: Sebuah Peluang Penelitian Anggaran dan Akuntansi. Jurnal Akuntansi Pemerintahan, 2(1), 53–64.
[14] Hoxby, C. M. (1996). How Teachers ’ Unions Affect Education Production. The Quarterly Journal of Economics, 111(3), 671–718. Retrieved from http://www.jstor.org/stable/2946
[15] Hutt, R. (2020). The economic effects of COVID-19 around the world. Retrieved April 5, 2020, from Future of Economic Progress website: https://www.weforum.org/agenda/2020/02/coronavirus-economic-effects-global-economy-trade-travel/
[16] Larkey, P. D., & Smith, R. A. (1989). Bias in the formulation of local government budget problems. Policy Sciences, 22(2), 123–166. https://doi.org/10.1007/BF00141382
[17] Laubscher, P., Smit, B. W., & Ellis, L. L. (2003). The macro-economic impact of HIV/Aids in South Africa. Studies in Economics and Econometrics, 27(2), 1–28.
[18] Lee, T. M., & Plummer, E. (2007). Budget Adjustments in Response to Spending Variances: Evidence of Ratcheting of Local Government Expenditures. Journal of Management Accounting Research, 19(1), 137–167. https://doi.org/10.2308/jmar.2007.19.1.137
[19] Leone, A. J., & Rock, S. (2002). Empirical tests of budget ratcheting and its effect on managers’ discretionary accrual choices. Journal of Accounting and Economics, 33(1), 43–67. https://doi.org/10.1016/S0165-4101(01)00044-1
[20] Lim, D. (2011). Budget ratcheting and agency problem. The University of Texas at Dallas.
[21] Marlowe, J. (2009). Budget Variance, Slack Resources, and Municipal Expenditures. SSRN Electronic Journal, 1–21. https://doi.org/10.2139/ssrn.1505646
[22] Ministry of Finance. (2020a). KEMENKEU TANGGAP COVID-19: Informasi Terkini. Retrieved March 26, 2020, from https://www.kemenkeu.go.id/covid19
[23] Ministry of Finance. (2020b). RUU Perppu Nomor 1 Tahun 2020 tentang Keuangan Negara dan Stabilitas Sistem Keuangan Diserahkan ke DPR. Retrieved April 4, 2020, from Kementerian Keuangan website: https://www.kemenkeu.go.id/publikasi/berita/ruu-perppu-nomor-1-tahun-2020-tentang-keuangan-negara-dan-stabilitas-sistem-keuangan-diserahkan-ke-dpr/
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[25] Prabowo, T. J. W., Leung, P., & Guthrie, J. (2018). Reforms in public sector accounting and budgeting in Indonesia (2003-2015): Confusions in implementation. Journal of Public Budgeting, Accounting and Financial Management, 30(1), 2–21. https://doi.org/10.1108/JPBAFM-03-2018-002
[26] Sachs, J. (2001). Macroeconomics and health: investing in health for economic development. World Health Organization.
[27] Smith, R. W., & Bertozzi, M. (1998). Principals and agents: An explanatory model for public budgeting. Journal of Public Budgeting, Accounting & Financial Management, 10(3), 325.
[28] Susanto, A. A., & Halim, A. (2018). Efek Ratchet pada Anggaran Pemerintah Daerah: Studi pada Satuan Kerja Perangkat Daerah Pemerintah Provinsi Daerah Istimewa Yogyakarta. Jurnal Akuntansi Dan Akuntabilitas Publik, 1(1), 88. https://doi.org/10.22146/jaap.35337
[29] Tobing, S. (2020). Dampak dan Risiko Defisit Anggaran hingga 5,07% untuk Atasi Corona. Retrieved April 4, 2020, from Katadata website: https://katadata.co.id/berita/2020/04/01/dampak-dan-risiko-defisit-anggaran-hingga-507-untuk-atasi-corona
[30] Tucker, H. J. (1982). INCREMENTAL BUDGETING: MYTH OR MODEL? Political Research Quarterly, 35 (3), 327–338. https://doi.org/https://doi.org/10.1177/106591298203500304
[31] Waal, A. De. (2003). How will HIV/AIDS transform African governance? African Affairs, 102(406), 1–23. https://doi.org/10.1093/oxfordjournals.afraf.a138809
[33] Weitzman, M. L. (1980). The “Ratchet Principle” and Performance Incentives. The Bell Journal of Economics, 11(1), 302. https://doi.org/10.2307/3003414
[34] Wildavsky, A. B., & Caiden, N. (1988). The new politics of the budgetary process. Scott, Foresman Glenview, IL.
[35] Yasmin, N. (2020, March 18). Gov ’ t to Reallocate Up to $ 1 . 79b From State Budget for Covid-19 Relief. Retrieved March 18, 2020, from Jakarta Globe website: https://jakartaglobe.id/business/govt-to-reallocate-up-to-179b-from-state-budget-for-covid19-relief