Local governments often obtain a portion of their revenues from land-use change and resource exploitation. Spatial externalities created by conservation result in local governments being reluctant to set aside productive lands for conservation, particularly when local people demand the conversion of ecosystems to pursue livelihood activities. Intergovernmental fiscal transfers (IFTs) can therefore play an important role in creating incentives for those governments to pursue conservation at the local level. This study has considered key elements of the design of IFTs for conservation, using the case of REDD+ revenue distribution in Indonesia. Studies on IFTs for conservation have focused mainly on the distribution formula (Köllner et al., 2002; Ring, 2008c; Kumar and Managi, 2009), while conditionality and accountability have received less attention. Moreover, research on IFTs for conservation, particularly in developing countries, has not considered the complex settings of government bureaucratic structures (Ring, 2008c; Kumar and Managi, 2009). Therefore, we hope that the findings of this study will contribute to the growing body of literature on IFTs for conservation. The study also provides a concrete example of how to design a mechanism to distribute revenues of REDD+ to subnational governments in developing countries.
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