The Effectiveness of Fiscal Transfer of South Sumatra Province: Initiation of Ecological Fiscal Transfer Concept

Abstract

This study identifies the effectiveness of South Sumatra Provincial Government’s financial assistance budget transfer on Poverty Levels and the Human Development Index. This fiscal transfer from the Provincial Government is to assist and support the Regency/City Governments’ budget for their development program. The problem of this study is to identify the effect of this fiscal transfer to support the Regency/City Government in reducing poverty level and increasing Human Development Index. A coefficient of determination analysis is applied to assess the effect of the provincial financial assistance to reduce poverty rates and increase the Human Development Index. Analysis is also conducted to identify opportunities for the implementation of Ecological Fiscal Transfer model for the allocation of financial assistance budget. The study analyzes data from the Regional Budget of South Sumatra Province for the last 10 years. Coefficient of determination analysis shows that the fiscal transfer in the form of financial assistance fails to explain the variation of poverty rates and the Human Development Index in the area. Following that, the study also adopted an Ecological Fiscal Transfer model to simulate the allocation of Provincial Financial Assistance. Keywords: financial assistance, ecological fiscal transfer, poverty, Human Development Index