Fiscal Decentralization in Economic Growth and Social Development in Indonesia

Abstract

Fiscal decentralization in Indonesia has become an essential instrument to achieve regional independence, equitable development, and improvement in the quality of public services. This study aims to analyze the role of fiscal decentralization in relation to economic growth and social development in Indonesia by employing a library research method based on relevant academic literature. The review results indicate that fiscal decentralization contributes positively to the increase of Gross Regional Domestic Product, the Human Development Index (Indeks Perkembangan Manusia /IPM), as well as the quality of education and health, particularly in regions with strong institutional capacity. Nevertheless, several serious challenges remain, including fiscal disparities across regions, the dominance of bureaucratic expenditure, and the low level of accountability in budget management. Fiscal transfers have proven effective in reducing inequalities, but excessive dependence on transfers may weaken local innovation. The discussion further highlights that the success of fiscal decentralization is determined not only by the amount of transfers, but also by governance, transparency, and active public participation. Therefore, fiscal policy reform is required through optimizing productive expenditure, strengthening local fiscal capacity, and improving systems of oversight and public accountability.