Do Fiscal Autonomy and Economic Growth Reduce Poverty? Panel Evidence from Indonesian Provinces
DOI:
https://doi.org/10.59890/ijaamr.v4i10.2Keywords:
Fiscal Independence, Economic Growth, Poverty, Panel Data, Difference GMM, Fiscal Decentralization, IndonesiaAbstract
This study examines the effects of local fiscal autonomy and regional economic growth on poverty rates in Indonesia’s 34 provinces for the period 2015–2025, using balanced panel data comprising 374 observations. Estimations were conducted using two approaches: a static panel model (Random Effects Model/REM with cluster-robust standard errors) and a dynamic panel model (two-stage Difference GMM with Windmeijer correction, 2005). Pre-estimation tests revealed significant cross-sectional dependence (Pesaran CD, p < 0.001) and no multicollinearity issues (VIF = 1.001). The Hausman test selected the REM as the best static model. The estimation results consistently show that local fiscal autonomy, proxied by the natural logarithm of Local Own-Source Revenue (ln(PAD)), has a negative and significant effect on poverty (REM: β = -3.889, p < 0.001; Difference GMM: β = -2.754, p < 0.001), thus supporting the first hypothesis. A 10 percent increase in real PAD is associated with a reduction in poverty of approximately 0.28 percentage points in the short term. Conversely, economic growth (GRDP) has a weak positive effect on poverty (β = 0.007, p < 0.05 in GMM), confirming the development paradox in which aggregate growth is not automatically transmitted to equitable poverty reduction; thus, the second hypothesis is rejected in the direction hypothesized. Simultaneously, both variables have a significant effect (Wald χ² = 51.607, p < 0.001). The dynamic model reveals strong poverty persistence (ρ = 0.405, p < 0.001), reflecting a structural poverty trap.
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