Abstract
Fiscal decentralization in Indonesia initiated in 2001 has proven to be effective and efficient; although, its implementation still need to be evaluated. The aim of the study was to analyze the implementation of fiscal decentralization on economic growth in Central Java. Tools multiple regression analysis using the method Fixed Effect Model (FEM).The period of the research was 9 years (2009-2017), and the subject of the was 35 districts/cities in Central Java Province. The dependent variable was economic growth, the independent variable was fiscal decentralization, and the control variables were investment and labor. The results showed that fiscal decentralization has a positive effect on economic growth in the district/city in Central Java. Other findings, private investment and the amount of labor encourage economic growth in Central Java. Based on findings, to reduce the fiscal gap, local governments should be able to increase their fiscal capacity through the development of commodity-based economic activity in their regions
 Keywords: Fiscal decentralization, Economic growth, Investment, Labor
Highlights
The implementation of regional autonomy and fiscal decentralization in Indonesia which was effective on January 1, 2001 by the issuance of Law No 22 of 1999 on Regional Government and Law No 25 of 1999 on Financial Balance between Central and Local Government bring significant changes
This study aims to analyze the effect of the implementation of fiscal decentralization to economic growth in district/city in Central Java province of Indonesia, and the control variable is investment and labor
In the autonomy and fiscal decentralization era, the spending of local government increased sharply compared to the previous one as the authority delegated from central government to the local government was getting bigger, and the principle of money follow function was inherent
Summary
The implementation of regional autonomy and fiscal decentralization in Indonesia which was effective on January 1, 2001 by the issuance of Law No 22 of 1999 on Regional Government and Law No 25 of 1999 on Financial Balance between Central and Local Government bring significant changes. Fiscal decentralization plays an important role in promoting sustainably economic growth at regional level through budget allocations in real sectors. Zang and Zou (1998) stated that the decentralization of expenditure and revenueis an approach to improve efficiency in public sector, decrease budget deficit, and promote economic growth. In this case, economic growth is used as an indicator to assess economic performance, in increasing the production of goods and services,at regional level. The increased production of goods and services is expected to have trickle-down effect that could improve people's welfare
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