Regional Revenues and Human Development Index: An Empirical Evidence from Indonesia

The purpose of this study was to examine the relationship between local government revenues and the human development index (HDI) and their dimensions. The local government sample covers the 2014-2016 observation period. The number of local governments for 2014, 2015, and 2016 was 538, 541, and 541 respectively or a total of 1620 observations. Human development index data is obtained from the website of the Central Statistics Agency (BPS), local government revenue data is taken from tabulations made by the Directorate General of Fiscal Balance, Ministry of Finance of the Republic of Indonesia. Regression analysis was used to test the hypotheses. The findings show that PAD and DAK are positively associated with HDI. Consistent with these results, PAD and DAK also have positive associations with HDI dimensions which include UPS, PENG, and SHL. However, DBH and DAU are negatively related to HDI and also have a negative relationship to HDI dimensions (UPS, PENG, and SHL). These results suggest that to strengthen HDI, local government financial independence and special allocation funds for specific programs are important. Findings about the negative relationship between DAU and DBH with HDI suggest that local governments that rely on this type of financing are regions that are relatively developing in terms of human development. In addition, the possibility of inefficiency in the use of DAU and DBH may occur. These results can be taken into consideration in making policies related to transfer funds from the central government to local governments.