Regional Fiscal Resources Income Inequality and Poverty in Indonesia

Evaluating fiscal budget utilization is crucial for understanding fiscal conditions and poverty in Indonesia. This study examines the relationships among locally-generated revenue, central government transfers, income inequality, regional economic conditions, and poverty levels across Indonesian provinces. It utilizes a balanced panel dataset covering 34 provinces from 2018 to 2024, comprising 238 observations. The analysis employs the Pooled Ordinary Least Squares method with heteroskedasticity-robust standard errors, incorporating the unemployment rate, average years of schooling, and Gross Regional Domestic Product (GRDP) at current prices as additional explanatory variables. Locally-generated revenue and economic output exhibit a negative relationship with poverty, whereas central government transfers and income inequality show a positive relationship. Unemployment and education were found to be statistically insignificant. A 1% increase in locally-generated revenue is associated with a 0.039 decrease in the poverty rate, while a 1% increase in central transfers is linked to a 0.070 increase. These contrasting relationships highlight the importance of distinguishing between fiscal revenue sources when analyzing provincial-level poverty. The study’s findings indicate associations between variables rather than causal relationships. Diagnostic tests revealed the presence of serial correlation and heteroskedasticity, necessitating caution in statistical decision-making and suggesting a need for methodological refinement. Furthermore, further research is required regarding transfer allocation mechanisms and the consideration of regional characteristics in the context of poverty alleviation.