Maria Maria, Khoiria Afriana, Bainil Yulina

Determinants of the Level of Government Financial Independence in Districts/Cities in South Sumatera

Introduction

Determinants of the level of government financial independence in districts/cities in south sumatera. Investigates government financial independence in South Sumatra's districts/cities. Key determinants include government size and capital expenditure, highlighting significant policy impact.

Abstract

Based on data from LKPD of districts/cities in South Sumatra over the last 10 years, the mean level of financial independence in the region is around 11%, with significant disparities between regions. Palembang City has the highest level of independence at 49%, while most other regions have levels below 12%. These findings indicate that subnational financial independence is affected by various determinants. To analyze this, the study applies a fixed-effect panel data regression model using EViews version 13. The research demonstrates that the size of subnational government has a positive and significant influence. In contrast, Leverage and subnational incentive funds have no significant effect. Capital expenditure exerts a negative and significant influence. Simultaneously, the analysis reveals that the four variables exert a significant effect on subnational financial independence. This finding indicates that any policy on government activities significantly impacts the financial independence of the government.

Review

The study, "Determinants of the Level of Government Financial Independence in Districts/Cities in South Sumatera," addresses a critical issue in public finance: the financial autonomy of subnational governments. The abstract effectively highlights a significant problem, noting a remarkably low average financial independence of 11% across districts and cities in South Sumatera over the last decade, coupled with pronounced regional disparities. This stark observation, particularly the contrast between Palembang City and other regions, underscores the urgency and relevance of identifying the underlying factors. The research employs a robust methodology, utilizing a fixed-effect panel data regression model, which is appropriate for analyzing such longitudinal data across multiple entities. The analysis yields several noteworthy findings regarding the determinants of financial independence. The research establishes that the size of the subnational government has a positive and significant influence, suggesting that larger administrative units might possess greater fiscal capacity or opportunities for revenue generation. Conversely, capital expenditure is identified as having a negative and significant impact, which warrants further investigation into the nature and financing of these investments. Interestingly, the study finds no significant effect from Leverage or subnational incentive funds, challenging assumptions about their direct impact on financial independence within this specific context. Despite these individual variable outcomes, the abstract concludes that the four examined variables collectively exert a significant effect on subnational financial independence, emphasizing the interconnectedness of these factors. This paper makes a valuable contribution by empirically examining specific determinants within a particular Indonesian province, offering insights that could be highly relevant for local policymakers. The clear identification of both influential and non-influential factors provides a foundation for targeted fiscal reforms. However, while the abstract points to a "significant impact" of policy on government activities, the full paper would benefit from elaborating on the specific mechanisms behind the negative impact of capital expenditure and the lack of effect from leverage and incentive funds. A deeper discussion on the theoretical underpinnings and practical implications for crafting policies that genuinely enhance subnational financial independence, particularly beyond the general statement provided, would further strengthen its policy relevance. Overall, this study offers a pertinent analysis of subnational fiscal health, inviting further exploration into its complexities.

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