Nonlinear Relation between Government Spending and Education: Theoretical and Empirical Evidence from Districts in Indonesia

The Government of Indonesia has fully committed to allocating 20 percent of its budget to education since 2009. This paper aims to examine the impact of government spending on the enrollment ratio of basic education at the district level in Indonesia after 2009. This paper theoretically shows a nonlinear pattern between government spending and education by applying the endogenous growth theory. Moreover, this paper portrays empirical evidence from the district level in Indonesia that combining central and local government educational spending has no signicant impact on the enrollment ratio of education. However, disaggregating the spending shows that the local government spending has a negative impact, whereas the central government spending has a positive and nonlinear impact.