FISCAL DEPENDENCE AND CHALLENGES TO REGIONAL AUTONOMY: ASSESSING THE EFFECTIVENESS OF FINANCIAL DECENTRALIZATION IN INDONESIA
DOI:
https://doi.org/10.36563/0y02q518Keywords:
fiscal decentralization, fiscal dependency, regional autonomy, digital financial, management, IndonesiaAbstract
This study critically examines fiscal dependency and regional autonomy within Indonesia’s fiscal decentralization framework, focusing on developments from 2020 to 2025 and the implications of Law No. 1 of 2022. Employing a mixed-methods approach, the research combines quantitative analysis of regional fiscal data with qualitative insights from interviews with policymakers and financial officials. Findings reveal that despite regulatory reforms aimed at enhancing local revenue generation and fiscal autonomy, most regions remain heavily reliant on central government transfers, with local revenues contributing a limited share of regional budgets. Key factors sustaining this dependency include structural economic disparities, administrative capacity constraints, regulatory complexities, and uneven adoption of digital financial management systems. The study highlights that while progressive regions demonstrate innovation and improved fiscal performance, many others face significant challenges in adapting to new fiscal policies and technologies. This research contributes to the broader discourse on fiscal federalism by integrating the role of digital transformation in regional financial management and providing evidence-based recommendations. These include strengthening local economic bases, fostering institutional capacity, improving policy coherence, and accelerating digitalization efforts. The findings have important implications for policymakers seeking to enhance fiscal decentralization outcomes and for scholars interested in the dynamics of subnational fiscal governance in developing countries.
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