THE EFFECT OF FISCAL DECENTRALIZATION AND REGIONAL INCOME INEQUALITY ON REGIONAL FINANCIAL PERFORMANCE OF DISTRICT/CITY GOVERNMENTS OF WEST SUMATRA PROVINCE
Amor Marundha (a), Arna Suryani (b), Eva Herianti (c)

(a) Faculty of Economic and Business Bhayangkara Jakarta Raya University
Amor.Marundha[at]dsn.ubharajaya.ac.id
(b) Faculty of Economic and Business Batanghari Jambi University
Arna.halim[at]yahoo.co.id
(c) Faculty of Economic and Business Muhammadiyah Jakarta University
Eva.herianti[at]umj.ac.id

Abstract

The optimal condition of regional financial performance is realized when the delegation of authority in the field of revenue and financing of regional expenditures has independence and minimal inequality in regional income. This study aims to examine the effect of fiscal decentralization and income inequality on regional financial performance. The sample of this study used secondary data obtained from the Ministry of Finance, the Central Statistics Agency for the Province of West Sumatra with a panel data approach consisting of 19 districts/cities in the province of West Sumatra with a time span of 2018-2020. The analysis approach uses ordinary least square (OLS) regression with data analysis techniques carried out using the SmartPLS version 3.2 model. The results of the analysis concluded that- (1) Fiscal Decentralization has a positive and significant impact on regional financial performance- (2) Regional income inequality has a positive and significant effect on regional financial performance. Regional Financial Performance is influenced by fiscal decentralization and regional income inequality by 35.2% while the remaining 64.8% is explained by other factors outside the study. The support of hypotheses one and two in this study proves that fiscal decentralization, regional inequality and regional financial performance can make important contributions to the development of development theory. Fiscal decentralization, regional inequality and financial performance have an impact on changes in economic, political and social orientation as well as people^s views on changes in life attitudes and customs in economic development. The implications of this research are related to the theory of development of the Rostow model based on the perspective of changes in community economic growth, especially districts and cities which are challenged to grow significantly in changes in economic, political, social orientation and changes in life attitudes.

Keywords: Decentralization, regional income inequality and regional financial performance

Topic: Accounting