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ABSTRACT
The purpose of this paper is to identify the impact of intergovernmental transfer funds on interregional income disparity in Indonesia after reforms by the administration towards fiscal decentralization. Household income data from 2006 and 2011 are used to generate interregional and intraregional income inequality index data. It is found interregional income disparities are affected by intergovernmental transfer funds, physical and human capital, employment, agglomeration, industrialization, openness, and geographical location. Intraregional income inequalities in rich provinces and poor provinces both have positive effects on interregional income disparity. If a central government increases the intergovernmental transfer fund to the rich province by 1%, this widens the interregional income disparity by 0.68%. An increase of the intergovernmental transfer fund to poor provinces by 1% is expected to reduce the interregional income disparity by 1.06%.
JEL:
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 Data concerning household expenditures from Susenas (Survei Sosial Ekonomi Nasional or National Socio-economic Survey) excluded savings; therefore, the income (and assets) is understated. Nugraha and Lewis (Citation2013) found that inequality is lower once non-market income is considered in Susenas; though Susenas is already included a non-market consumption.