Rahmawati Riantisari, Arie Rachma Putri, Faizah Khotimatul Husna

Determinants of local government revenue and economic potential: Pathways for revenue enchancement

Introduction

Determinants of local government revenue and economic potential: pathways for revenue enchancement. Discover determinants of local government revenue & economic potential in Klaten Regency. GRDP, population, & regional taxes are key factors for enhancing fiscal independence & revenue.

Abstract

Fiscal independence represents a critical indicator of regional governments' capacity to finance development without dependence on central government transfers. Klaten Regency continues to exhibit low fiscal autonomy levels with suboptimal of local government revenue (LGR) contributions. This study aims to: a). identify principal factors influencing Klaten Regency's LGR, and b). analyze local economic potential for enhancing revenue sources. The research novelty integrates comprehensive economic factor analysis including Gross Regional Domestic Product (GRDP), population, tourist arrivals, regional taxes, regional levies, and capital expenditure with leading sector identification through Location Quotient (LQ) analysis. This holistic approach fills a significant research gap in Klaten Regency studies. The methodology employs multiple linear regression analysis of six variables, stakeholder interviews, and LQ analysis to determine base economic sectors. Results demonstrate that GRDP, population, and regional taxes have a significant influence on LGR, while tourist numbers, levies, and capital expenditure show no significant impact. Notably, levies exhibit negative effects on revenue generation. The study concludes that LGR enhancement requires optimization of base economic sectors rather than broad-spectrum approaches. Strengthening fiscal capacity demands adaptive, targeted management strategies aligned with local potential. Future research will focus on formulating tourism sector development strategies through regional business management frameworks. This comprehensive analysis provides policymakers with evidence-based insights for improving Klaten's fiscal independence through strategic economic sector development.

Review

This study presents a timely and relevant analysis of local government revenue (LGR) determinants and economic potential in Klaten Regency, addressing the critical issue of low fiscal autonomy. The authors effectively identify key factors influencing LGR and analyze economic potential to enhance revenue sources, a crucial endeavor given Klaten's reliance on central government transfers. A significant strength of this research lies in its integrated approach, combining comprehensive economic factor analysis (including GRDP, population, tourism, taxes, levies, and capital expenditure) with Location Quotient (LQ) analysis to identify leading sectors. This holistic methodology effectively fills a notable research gap specific to Klaten Regency, providing a robust framework for understanding its fiscal landscape and utilizing a solid methodological foundation of multiple linear regression, stakeholder interviews, and LQ analysis. While the study offers valuable insights, there are areas for further elucidation. The finding that levies exhibit "negative effects on revenue generation" is particularly intriguing and counter-intuitive, yet the abstract provides no immediate explanation or hypothesis for this outcome. Elucidating the underlying causes – perhaps inefficient collection, high administrative costs, or disincentives for economic activity – would significantly strengthen the policy implications. Similarly, while the conclusion emphasizes "optimization of base economic sectors," the abstract could more explicitly bridge how LQ-identified sectors directly translate into concrete strategies for LGR enhancement beyond a broad recommendation. The mentioned stakeholder interviews are a positive methodological inclusion, but their specific contributions to the results or the interpretation of complex findings, such as the negative levy effect, are not articulated, leaving a potential gap in explaining the nuances of the local context. Despite these minor points, this research offers a substantial contribution to the understanding of local government fiscal capacity and strategic economic development. The evidence-based insights derived from the analysis of GRDP, population, and regional taxes provide clear directions for policymakers in Klaten Regency. The call for adaptive, targeted management strategies aligned with local potential is well-founded and provides a practical roadmap. Future research focusing on tourism sector development, even though tourist numbers showed no direct impact on LGR in this study, points towards a forward-looking perspective on leveraging untapped potential. Overall, this study serves as an excellent resource for local government officials, economists, and researchers interested in enhancing regional fiscal independence through strategic economic planning.

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