Fiscal Decentralization and Income Inequality: A Prediction Using the SEM Model

Roy, J., Wijaya, A., Darma, D. C., & A, E. K. (2022). Fiscal Decentralization and Income Inequality: A Prediction Using the SEM Model. Journal of Economics, Business, and Accountancy Ventura, 24(3), 379-391. https://doi.org/10.14414/jebav.v24i3.2681

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Abstract

Economic development in a region is not only measured by the fiscal dimension and
the economic growth but also based on the income distribution. This study aims to
analyze the effect of fiscal decentralization on investment, economic growth, economicÂ structure, employment opportunities, and income inequality between districts/citiesÂ in East Kalimantan Province, Indonesia. This study uses panel data (2013-2019) ofÂ the amalgamation of seven districts and three cities in East Kalimantan Province,Â analyzed using the Structural Equation Model (SEM). The findings show thatÂ regional tax plays a crucial role in enhancing regional investment, economic growth,Â and employment opportunities. It is also important for reducing the economicÂ structure imbalance and income inequality. Profit-sharing funds improve regionalÂ investment, economic growth, and employment opportunities. At the same time,Â special allocation increases employment opportunities and economic structureÂ imbalance. Furthermore, regional retribution increases employment opportunitiesÂ and reduces the economic structure imbalance, but it harms regional economicÂ growth. The practical implications offer solutions to the realization of local revenueÂ sources for economic development and alleviation of social problems, such asÂ employment opportunities and inequality in welfare.

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Fiscal Decentralization and Income Inequality: A Prediction Using the SEM Model

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