Fiscal Policy Strategy to Address Regional Inequality and Improve the Welfare of Indonesian Society

Muh. Nur, Ummy Kalsum, Kusman Palaula, Asrul Jabani, Syamsir Nur

Abstract

This study examines the effectiveness of fiscal policy in addressing regional inequality and improving social welfare in Indonesia. Despite sustained efforts through fiscal decentralization and intergovernmental transfers, significant regional disparities persist across the archipelago.
The findings indicate that, although fiscal decentralization has increased local governments’ control over financial resources, its impact on reducing inequality remains limited due to weak institutional capacity and inefficient resource management. Similarly, fiscal transfers designed to support less developed regions have not consistently translated into improved welfare outcomes, largely due to suboptimal allocation mechanisms and insufficient monitoring systems.
The study further identifies challenges in aligning fiscal policy with the Sustainable Development Goals (SDGs), particularly in regions characterized by limited administrative and governance capacity. These structural constraints hinder the effectiveness of redistributive fiscal instruments and weaken their developmental impact.
The results suggest that strengthening institutional capacity at the local level, improving the targeting and efficiency of fiscal transfers, and enhancing policy coordination with SDG frameworks are critical for reducing regional inequality. Without substantial improvements in governance quality and monitoring mechanisms, fiscal policy interventions are unlikely to achieve inclusive and sustainable development outcomes.
This study provides policy-relevant insights for optimizing fiscal strategies and advancing equitable regional development in Indonesia.

 

Keywords: Fiscal Policy; Regional Inequality; Fiscal Decentralization; Intergovernmental Transfers; Governance Quality; Sustainable Development Goals (SDGs); Indonesia.

 

DOI https://doi.org/10.55463/issn.1674-2974.53.2.9


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