DOES HIGH TRANSFER FROM THE CENTRAL GOVERNMENT TO THE LOCAL GOVERNMENT GUARANTEE HIGH ECONOMIC GROWTH? EVIDENCE FROM CENTRAL JAVA PROVINCE

Abstract

The implementation of fiscal decentralization in Indonesia has been running for 18 years, marked by the increase in the burden on local governments in carrying out it, and the fact that there are still many local government budgets used for personal expenditure. Nationally, there are still 151 regencies/municipalities out of 416 regencies/municipalities in Indonesia, which have more than 50% of the total regional revenue and expenditure budget. Many local governments rely on transfers of funds from the central government in carrying out the role of fiscal decentralization. The dependence of regional government is reflected in the size of the balancing budget used to finance fiscal decentralization, due to the limited revenue from original local government revenue. This paper aims to see do regencies/municipalities finance fiscal decentralization, what is the local revenue for each region and its relation to economic growth, and what is the employee expenditure allocated to each regional revenue and expenditure budget and its relationship with economic growth. This paper uses cross-tabulation analysis with variables of original local government revenue, the proportion of employee expenditure on regional revenue and expenditure budget, and economic growth in 35 regencies/municipalities in the Central Java region. Local income consists of local revenue, balanced budget, and other legitimate income. Regencies/municipalities consist of local taxes, retributions, the income of regional government corporate and management of separated regional government wealth, and other original local government revenue, while the balanced budget is in the form of tax share, no tax share, general allocation fund, and special allocation fund. Research in Central Java Province because it is a Province with the number of regencies/municipalities the second largest after East Java in Indonesia. The results of this study are that in the province of Central Java, there are still 30 regencies/municipalities (85,7%) whose balance funds exceed 50% of their APBD funds, in other words having very low PAD, and employee expenditure is still high. Transfer of funds from the central government to the regions has also not played a major role in driving economic growth. There are strong indications of the inability of local governments to carry out fiscal decentralization so that improvements are needed in the formulation of their policies. One way to increase local government original income is to diversify local taxes, but by paying attention to the situation and conditions of the region so that it does not harm the economy in general. It could also be by developing productive regional businesses while still prioritizing public services. Besides, the government can also carry out efficiency in running its government, for example by training employees and not increasing the number of employees over the next few years.

Keywords: 1 Fiscal Decentralization · 2 Economic Growth · 3 Original Local Government Revenue · 4 Personal Expenditure · 5 Regional Revenue · 6 Expenditure Budget