THE EFFECT OF LOCAL TAXES AND INTERGOVERNMENTAL TRANSFERS ON COMMUNITY WELFARE: EVIDENCE FROM INDONESIA, 2022-2024

Abstract

This study examines the effect of local taxes and intergovernmental transfers on community welfare in Indonesia during 2022-2024. Community welfare is proxied by the Human Development Index (HDI). Using a quantitative explanatory approach, the study relies on secondary data drawn from official fiscal and statistical publications. The population comprises all 38 provinces in Indonesia (Badan Pusat Statistik, 2024). Purposive sampling was used to select provinces that provided complete and comparable data on local taxes, Special Allocation Funds, General Allocation Funds, Revenue Sharing Funds, and HDI for 2022-2024. As a result, 30 provinces met the criteria, producing 90 observations. Data were analyzed using descriptive statistics, classical assumption tests, multiple linear regression, the coefficient of determination, and t-tests. The results show that local taxes, Special Allocation Funds, General Allocation Funds, and Revenue Sharing Funds each have a positive and significant effect on community welfare. These findings support fiscal federalism theory, which suggests that subnational fiscal resources can improve welfare when they strengthen the ability of regional governments to provide public services and development programs. Practically, local governments need to strengthen local tax administration and improve the quality of expenditure financed by intergovernmental transfers so that fiscal resources are translated more effectively into human development outcomes.