The Impact of Fiscal Decentralization on Regional Economic Growth and Regional Income Disparity in Indonesia (Case Study: West Sumatra Province during the period 2011 - 2017)

Defri Kurniawan () and Budiono Budiono
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Defri Kurniawan: Master of Applied Economics, Padjadjaran University

No 201905, Working Papers in Economics and Development Studies (WoPEDS) from Department of Economics, Padjadjaran University

Abstract: This study aims to analyze the impact of fiscal decentralization on regional economic growth and also investigate its influence on regional income disparity, particularly among regencies and municipalities in West Sumatra Province during the period from 2011 until 2017. The panel data model is applied on this study involving 19 (nineteen) regencies and municipalities in West Sumatra Province. As the results, fiscal decentralization which devolves the authority to collect local own revenue (PAD) prove not to promote distinguishable regional economic growth and also it contributes positively to regional income disparity. Conversely, the combination of local own revenue and intergovernmental transfer affect the positive contribution to regional economic growth and also narrowing the gap of regional income disparity. This research suggests that the intergovernmental transfer as an implication of the fiscal decentralization is still required by the regional government (cities and regencies) to support their financial resources, particularly in West Sumatra Province case. Moreover, allocating more budget on capital expenditure exhibits beneficial result to increase regional economic growth.

Keywords: Fiscal decentralization; income disparity; regional; Indonesia (search for similar items in EconPapers)
JEL-codes: H3 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2019-11, Revised 2019-11
New Economics Papers: this item is included in nep-sea and nep-ure
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