The Impact of Fiscal Decentralization Policy on the Sustainability of Regional Development

Abstract

Fiscal decentralization is a critical component of the concept of regional autonomy that has been embraced since the Reform period. With fiscal decentralization, it is envisioned that every regional government can impose development in its territory. However, the fiscal decentralization strategy in the field cannot be applied in all areas owing to political concerns. Then, each local authority has had solid financial potential since 2001 since it got very high transfer funds from the central government, but the allowance for growth was minimal. E.g., there are still many roads that are destroyed. This may be attributed to the fact that much of the transfer funds from the central government are reserved towards staff spending. The purpose of this analysis is to provide a general overview of the impact on the stabilization of regional growth of the fiscal decentralization policy in effect since 2001. For literature review, this study uses a qualitative approach. The study shows, however, that the fiscal decentralization policy has not affected all growth sectors because much of the Central Government allocation funds continue to be used for regular spending and salary payments such that capital expenditure funding, including infrastructure development funding, is modest and even budget-free.