The politics of district budget formulation in multi-party indonesia

State budget formulation is supposed to reflect the needs of the people. However, political influences are often seen in the formulation. Politicians are interested in serving their constituents and win an election, especially when one of the competitors is an incumbent, resulting in the so-called political business cycle. This paper examines the influence of politics on budget formulation at the districts in Indonesia. It contributes to the literature in politics of state budgeting focusing on Indonesia, a country with a multi-party system. Most studies examined countries with a dual-party system. The second contribution is the use of two channels of district budget allocation, namely the line ministerial budget and local transfer. An earlier study on Indonesia only studied budget allocation using local transfer. Using data from 2010 and 2011, this paper concludes that the political business cycle did not seem to exist in the budget formulation at districts in Indonesia. It also concludes that budget allocation through local transfer responded to the needs of locals. However, the line ministerial allocation does not necessarily suit the needs of locals, especially access to safe water and electricity. As expected, the coalition parties do not have a significant impact on budget formulation at the district level. Perhaps their role is to provide support to the government formulation. Interestingly, the opposition parties also support the government’s budget proposal through line ministerial transfer, but criticise the budget allocation through a local transfer mechanism.