Measuring the Impact of Fiscal Decentralization on Economic Growth and Income Inequality using the Heuristic Network

Abstract

To achieve regional economic growth, the role of regional budgets is very important. In this regard, the utilization of regional economic and financial resources is an important factor in supporting the implementation of the fiscal decentralization system in the area. The implementation of fiscal decentralization in Indonesia is marked by the process of transferring financial resources to regions in significant amounts. In the last five years (2011-2015), the proportion of balancing funds to total regional income nationally reached an average of 73%. Despite the huge spike in decentralization policies, the implementation of fiscal decentralization in East Kalimantan Province, one of Indonesia's provinces, till now has not been able to bring about improving the welfare of local communities. In reality, there is still income inequality, although still relatively low in East Kalimantan Province. This study performs to measure the impact of fiscal decentralization on economic growth and income inequality in East Kalimantan – Indonesia. The hypothesis in this study is that fiscal decentralization negatively affects income inequality directly or indirectly through economic growth in East Kalimantan – Indonesia. The aim of this study is how to use the heuristic network to prove this hypothesis.