ANALYSIS EFFECT OF FISCAL INDEPENDENCE AND GOVERNMENT EXPENDITURE ALLOCATION ON POVERTY LEVELS IN DISTRICTS/CITIES IN CENTRAL JAVA PROVINCE FOR THE PERIOD 2019–2024

Abstract

This study aims to analyze the effects of the fiscal independence ratio, local government expenditure, and economic growth both partially and simultaneously on poverty rates across 35 districts and municipalities in Central Java Province over the period 2019–2024. Utilizing a quantitative approach, this study employs secondary data analyzed through panel data regression with the Fixed Effect Model (FEM) specification based on 210 observations. The results indicate that the fiscal independence ratio, local government expenditure, and economic growth simultaneously exert a significant effect on poverty rates, explaining 98.25% of the total variation. Partially, local government expenditure and economic growth have a negative and significant effect on poverty rates, suggesting that optimized public budget allocation and labor-intensive economic growth successfully generate a trickle-down effect for lower-income communities. Conversely, the fiscal independence ratio exhibits a counter-intuitive positive and significant effect on poverty. This phenomenon occurs because regional fiscal autonomy remains structurally low (averaging 19.85%), leading local governments to aggressively increase local own-source revenue through small-scale taxes and levies that disproportionately burden the informal sector and vulnerable groups. This study provides valuable insights for regional policy integration, highlighting that poverty alleviation requires a synchronized combination of progressive fiscal redistribution, well-targeted government spending, and the expansion of labor-absorbing economic sectors.