Analysis of the Intergovernmental Transfer Impact on Regional Income Inequality in Indonesia
Analysis of the Intergovernmental Transfer Impact on Regional Income Inequality in Indonesia

Summary/Abstract: Up until now, the income inequality between regions in Indonesia is still high. In the long term, this will become a serious problem if it is not immediately resolved by inter-regional investment allocation policies. The intergovernmental transfer is an instrument of fiscal decentralization policy in Indonesia since 2001 with three instruments namely shared revenue, general purpose grant, and specific purpose grant. The purpose of this study is to analyze the impact of the intergovernmental transfer on income inequality between provinces in Indonesia since the implementation of fiscal descentralization in 2001-2017, as well as to propose the recommended policies to reduce the basic service inequality. The object of this research was the amount of inequality between regions by using Theil Index. This study was conducted in 32 provinces in Indonesia. Data was processed with SPSS and Excel software. The results of this study found that income inequality between provinces in Indonesiawas still high. The study also found that the general purpose grant had a negative effect on income inequality between provinces, while the shared revenue had a positive effect on income inequality between provinces, and the specific purpose grant had no effect on income inequality between provinces in Indonesia.

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