Ecological fiscal transfers at the provincial level in Indonesia

A region of ecological importance which generates uncompensated cross-territorial positive spillovers has a comparatively higher fiscal need due to the direct and indirect costs it incurs for nature conservation. In order adequately to acknowledge fiscal needs relating to nature conservation, we propose an indicator based on protected area as a means of distributing general-purpose transfers and model the consequences of this for Indonesia's current system of fiscal transfer from the national to the provincial level. The results suggest that about a third of the country's provinces would benefit from the new transfer regime and that the equalizing effect of the transfers increases as the proportion of protected area increases.