POVERTY ALLEVIATION IN THE CONTEX OF FISCAL DECENTRALIZATION IN INDONESIA

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.