Equity and effectiveness in Indonesia’s Village Funds: evidence from district-level analysis

This paper evaluates the effectiveness and equity of Indonesia’s Village Funds (VF) program from 2015 to 2021 using district-level panel data. The results show that allocations remain largely shaped by structural factors, particularly the number of villages, limiting responsiveness to poverty conditions, although reforms introduced after 2018 increased the role of poverty-related criteria and strengthened the program’s equity orientation. Poverty impact analysis using fixed-effects models indicates that poverty outcomes are highly persistent over time, with past poverty levels exerting a strong influence on current conditions. After accounting for this persistence, the overall significant temporal and regional variation remains. The poverty-reducing association of VF appears stronger during the COVID-19 period and varies across island groups, reflecting differences in institutional capacity and local conditions. These findings suggest that improving implementation capacity and adopting more context-sensitive approaches are essential to enhance the contribution of VF to poverty reduction.