Article summary
This paper asks whether creating new local districts—government fragmentation—affects local economic activity, using Indonesia’s large wave of district splits from 2000–2014 as a case. The authors exploit variation in the timing of district splits to estimate effects on district GDP and public spending patterns, and they compare outcomes for newly created (“child”) districts and their parents. The study’s central contribution is empirical evidence that fragmentation can reduce measured local GDP in the short run even when central transfers rise.