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Recent studies reported that the implementation of local budgeting in the context of fiscal decentralization policy had no significant contribution in increasing rural community welfare. This study therefore evaluated the local budgeting policy implemented in Indonesia through Village Fund (VF) policy as well as examining the mediating role of local community empowerment. This investigation used crossectional data from 399 respondents from villages in Indonesia. The measures used in this study involved villagers' perception about policy and implementation of village fund, the success of rural welfare and local community empowerment. PLS-SEM was used to test the hyphoteses. The result of this study evidences that perceived of VF usage measured by perceived infrastructure development and perceived basic social services, except for perceived VF usage in rural economic development, have less significant impact on rural community welfare. Moreover, perceived involvement of community empowerment has minimum contribution on perceived rural community welfare. This study provides an understanding of paradox existing in the perceived role of local community empowerment in mediating the effect of local finance budgeting on rural welfare which is still rarely studied particularly in developing countries like Indonesia.
Haryono et al. (Tue,) studied this question.