Abstract
Regional studies literature argues that neighboring regions could impact each others’ economic performance trough trade, technology diffusion, capital flow, and political stability. However, the emergence of decentralization has put the above argument into a new context. This study aims to explain the impact of fiscal decentralization on economic. The study analyse the impact of fiscal decentralization using lag value and ignores the existence of spatial dependency between regions. Our study concludes that the fiscal decentralization has a significant effect on economic performance at a lag value of 3 years, implying that public budgeting will have a significant impact on increasing economic performance on 3 years later. In addition, the paper provides evidence that regions with similar economic performance are located nearby suggesting the presence of spatial dependence.
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