Economics & Sociology

ISSN: 2071-789X eISSN: 2306-3459 DOI: 10.14254/2071-789X
Index PUBMS: f5512f57-a601-11e7-8f0e-080027f4daa0
Article information
Title: Poverty alleviation in the contex of fiscal decentralization in Indonesia
Issue: Vol. 12, No 1, 2019
Published date: 03-2019 (print) / 03-2019 (online)
Journal: Economics & Sociology
ISSN: 2071-789X, eISSN: 2306-3459
Authors: Nursini Nursini
University of Hasanuddin Makassar South Sulawesi

Tawakkal Tawakkal
Ujung Pandang South Sulawesi, Indonesia
Keywords: fiscal decentralization, poverty, intergovernmental transfer, own source revenue, regional expenditure, Indonesia, panel data
DOI: 10.14254/2071-789X.2019/12-1/16
Index PUBMS: 202c9053-5d5d-11e9-8b68-fa163e6feac6
Language: English
Pages: 270-285 (16)
JEL classification: H30, H72, I31, I38, O11
The author is grateful to the Center for Policy Development of Hasanuddin University which has provided supports in both material and financial aspects in conducting research up to the publication of articles.

Acceleration of poverty reduction in Indonesia is largely determined by the role of regional governments in implementing fiscal decentralization. Three indicators of fiscal decentralization were used to measure their effects on poverty reduction, i.e., regional government expenditures, regional government revenues, and intergovernmental transfers. This study investigated the panel data regression models for 33 provinces in Indonesia during 2010-2016. The results show that regional government revenues and intergovernmental transfers had a statistically significant effect on reducing poverty while regional government expenditures did not. This study confirms that in the context of fiscal decentralization in Indonesia, the increase of regional government revenues both from own source revenues and intergovernmental transfers appear to be more effective in encouraging poverty reduction than the increase of the total regional government expenditures. Therefore, it is very important for policymakers at the regional level to encourage the increase of regional revenues in order to create enough fiscal space to fund poverty alleviation programs on the one hand. On the other hand, it is necessary to increase the proportion of regional government expenditures to priority programs for poverty alleviation more than regional government operational expenditures.


1. Abdillah, Khubbi & Mursinto, Djoko. (2016). The Effects of Fiscal Decentralization, Economic Growth and Income Inequality On Poverty Rate of Indonesia’s 33 Provinces. International Journal of Advanced Research, 4(2), 405-414. Available at http://www.jou

2. Agegnehu, A., & Dibu, W. (2017). Does decentralization have a role in poverty reduction? The Ethiopian experience. Journal of African Studies and Development, 9(1), 1-6. Available at

3. Ahmed, M. (2013). Fiscal Decentralisation and Political Economy of Poverty Reduction: Theory and Evidence from Pakistan (Doctoral dissertation, Durham University). Online: http://Etheses.Dur.Ac.Uk/7288/

4. Asante, Felix A., & Ayee, Joseph R. A. (2010). Decentralization and Poverty Reduction. ResearchGate Retrieved on February 28, 2017

5. Azam, M., Haseeb, M., & Samsudin, S. (2016). The impact of foreign remittances on poverty alleviation: Global evidence. Economics & Sociology, 9(1), 264-281. DOI: 10.14254/2071-789X.2016/9-1/18.

6. Azila-Gbettor, E. M., Adjimah, H. P., & Tibu, S. K. (2014). Fiscal decentralization and poverty reduction: Citizens view. Journal of Social Economics Research, 1(6), 118-128. Available at

7. Banwo, M. A. (2012). Fiscal decentralisation policy and poverty reduction: lessons from Nigeria. IPPR Journal, 7(1), 1-35. Retrieved February 4, 2017.

8. Bekele, Y. W., & Kjosavik, D. J. (2016). Decentralised Local Governance and Poverty Reduction in Post-1991 Ethiopia: A Political Economy Study. Politics and Governance, 4(4), 1-15.

9. Bin Kikuni, L. M. Ntanu. (2015). Fiscal Decentralization as a Must Fiscal Policy to Congolese Economy. International Journal of Public Administration and Management Research (Ijpamr), 2(5), 43-48

10. Bird, R., & Rodriguez, E. R. (1999). Decentralization and poverty alleviation. International experience and the case of the Philippines. Public Administration and Development: The International Journal of Management Research and Practice, 19(3), 299-319.

11. Boex, J., Heredia-Ortíz, E., Martínez-Vázquez, J., Timofeev, A., & Yao, G. (2006). Fighting Poverty through Fiscal Decentralization, United States Agency for International Development (USAID) Report, Washington, DC. Available at USAID: http://pdf.usaid.go

12. Boex, J., & Martinez-Vazquez, J. (2001). The Design of Equalization Grants: Theory and Applications (Part 1). Fiscal Decentralization: A Review of Concepts and Application for Indonesia. Fiscal Policy Summer Training Course. Andrew Young School of Public

13. Booth, A. (2003). Decentralisation and poverty alleviation in Indonesia. Environment and Planning C: Government and Policy, 21(2), 181-202. Retrieved November, 18, 2018.

14. Crook, R. C., & Sverrisson, A. S. (2001). Decentralisation and poverty-alleviation in developing countries: a comparative analysis or, is West Bengal unique?. Retrieved February, 28, 2017.

15. Fosu, A. K. (2009). Inequality and the impact of growth on poverty: comparative evidence for sub-Saharan Africa. The Journal of Development Studies, 45(5), 726-745.

16. Jellema, J., Lustig, N., Haas, A., & Wolf, S. (2016). The impact of taxes, transfers, and subsidies on inequality and poverty in Uganda. International Growth Centre.

17. Khadondi, S. (2018). Determinants of Own Source Revenue Mobilisation by Counties in Kenya. International Journal of Science and Research (IJSR). Retrieved September,7, 2018

18. Kusumaningrum, R. S. D. (2013). Link of fiscal decentralization to poverty reduction: Indonesian context. Jurnal Economia, 9(2), 116-129.

19. Liu, Y., Martinez-Vazquez, J. & Timofeev, A. (2013). Measuring the extent of fiscal decentralization: An application to the United States, in OECD and Korea Institute of Public Finance, Measuring Fiscal Decentralization: Concepts and Policies, OECD Publis

20. Maharajabdinul, R., Paddu, Hamid, A., & Nursini. (2015). Contribution Of Fiscal Decentralization To Poverty Reduction In Eastern Indonesia. IOSR Journal of Business and Management (IOSR-JBM), 17(12), 53-60. Available at

21. Martinez-Vazquez, J. (2011). The impact of fiscal decentralization: Issues in theory and challenges in practice (No. 5). Asian Development Bank.

22. Martinez-Vazquez, J., & McNab, R.M. (2001). Fiscal Decentralization and Economic Growth. Georgia State Andrew Young School of Policy (ISP) Working Paper No. 01-01. Available at SSRN: or

23. Martinez‐Vazquez, J., Lago‐Peñas, S., & Sacchi, A. (2017). The impact of fiscal decentralization: A survey. Journal of Economic Surveys, 31(4), 1095-1129. Available at

24. Moche, Tebogo J. Monkam, Nara., & Aye, G. C. (2014). Fiscal decentralization and poverty in South Africa: evidence from panel data analysis. Investment Management and Financial Innovations, 11(2), 69-76.

25. Musgrave, R. M. (1959). The Theory of Public Finance. NY: McGraw-Hill.

26. Nursini, N., Agussalim, A., Suhab, S., & Tawakkal, T. (2018). Implementing Pro Poor Budgeting in Poverty Reduction: A Case of Local Government in Bone District, South Sulawesi Province, Indonesia. International Journal of Economics and Financial Issues, 8

27. Ramírez, J. M., Díaz, Y., & Bedoya, J. G. (2016). Fiscal Decentralization and Multidimensional Poverty Reduction in Colombia: A Spatial Approach. Institute for Social and Economic Research, 57(1), 3259777. Retrieved September,4,2017

28. Rao, M. G., Bird, R. M., & Litvack, J. I. (1998). Fiscal decentralization and poverty alleviation in a transitional economy: The case of Viet Nam. Asian Economic Journal, 12(4), 353-378.

29. Sasana, H. (2018). Is Fiscal Decentralization Able to Reduce Poverty? Empirical Cases In Indonesia. International Journal of Civil Enginering and Technology (IJCIET), 9, 544-552. Available online at

30. Sepulveda, C., & Martinez-Vazquez, J. (2010). The Consequences of Fiscal Decentralization on Poverty and Income Inequality, International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1002, International Center for Public Policy, Andre

31. Soejoto, A., Subroto, W. T., & Suyanto, Y. (2015). Fiscal decentralization policy in promoting Indonesia human development. International Journal of Economics and Financial Issues, 5(3), 763-771. Available at http:

32. Silas, P. M. (2018). Effects of fiscal decentralization on poverty reduction in Kenya. International Journal for Innovation Education and Research, 6(1), 213-230.

33. Steiner, S. (2005). Decentralisation and poverty reduction: a conceptual framework for the economic impact. Available at Retrieved May, 7, 2018.

34. Stossberg, S., Bartolini, D., & Blöchliger, H. (2016). Fiscal decentralisation and income inequality: Empirical evidence from OECD countries. OECD Economic Department Working Papers, (1331), 0_1.

35. Tiebout, C. M. (1956). A pure theory of local expenditures. Journal of political economy, 64(5), 416-424.

36. Tjoe, Yenny. (2013). The Asian Century, Sustainable growth, and Climate Change. Edited Moazzem Hossain. Decentralization and poverty reduction in Indonesia: The case of East Nusa Tenggara (NTT). Tapan Sarker and Malc¬olm McIntosh. Edward Elgar Publishing

37. Valaris, N. (2012). Fiscal Decentralization and Its Effect on Poverty Evidence from Panel Data on the lower 48 American States. Capstone Projects-Economics. Paper 2.

38. Voigt, S., & Blume, L. (2012). The economic effects of federalism and decentralization—a cross-country assessment. Public Choice, 151(1-2), 229-254.

39. Von Braun, J. & Grote, U. (2000). Does Decentralization Serve the Poor? IMF-conference on fiscal decentralization 20-21 November in Washington D.C.

40. West, L. A., & Wong, C. P. (1995). Fiscal decentralization and growing regional disparities in rural China: Some evidence in the provision of social services. Oxford Review of Economic Policy, 11(4), 70-84.

41. Yao, G. A. (2007). Fiscal Decentralization and Poverty Reduction Outcomes: Theory and Evidence. Available at Retrieved January, 12, 2017