Inpresand Inequality: A Distributional Perspective on the Centre's Regional Disbursements¹

Central government funding of local expenditures under the Inpres programs is a potentially important policy instrument for redressing regional inequalities in Indonesia. This paper examines the implicit distributional objectives underlying Inpres. The scheme is modelled as the outcome of a constrained social choice problem facing the centre. An econometric model of Inpres allocations is used to identify the centre's implicit social preferences over alternative regional distributions of consumption. Mild absolute-inequality aversion is revealed, although it is somewhat swamped by province-specific preference factors related to population size and density. No other local welfare indicators appear to influence Inpres allocations.