Special Allocation Funds and Poverty Alleviation: Evidence From Lagging and Non-Lagging Regions in Indonesia
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DAK, Fiscal Decentralization, Lagging Regions, Non-Physical DAK, Physical DAK, Poverty Alleviation
Abstract
Research Originality – This study offers a novel contribution by examining the poverty impact of Physical and Non-Physical Special Allocation Funds (DAK) within a multisectoral national framework. Unlike previous studies focusing on specific sectors or regions, this study compares DAK effectiveness across lagging and non-lagging regions, thereby revealing spatial heterogeneity in fiscal transfer outcomes. The findings provide an empirical basis for designing poverty alleviation strategies that differentiate fiscal interventions according to regional development status and geographical characteristics.
Research Objectives – This study analyzes DAK disbursement from 2015 to 2023 and assesses the differential impacts of Physical and Non-Physical DAK on poverty in Indonesia. It also evaluates region-based fiscal policy effectiveness by examining DAK’s contribution to poverty alleviation, particularly in lagging regions.
Research Methods – The analysis is based on a panel dataset of 380 regencies and municipalities over the period 2015–2023, estimated using a fixed effects model (FEM).
Empirical Results – The results show that Non-Physical DAK significantly reduces poverty at the national level and in non-lagging regions, while Physical DAK is effective only in lagging archipelagic regions. These findings indicate that DAK effectiveness is spatially heterogeneous and depends on both regional development status and geographical characteristics.
Implications – These results underscore that fiscal transfer effectiveness depends on recipients’ spatial and sectoral contexts. DAK allocation should therefore be spatially differentiated by regional development status and geography, prioritizing Physical DAK in lagging archipelagic regions and strengthening Non-Physical DAK in non-lagging areas to enhance human capital and accelerate poverty reduction.
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