Village fiscal transfers and poverty alleviation in Java: Evidence from panel data analysis
DOI:
https://doi.org/10.12928/optimum.v16i2.15704Keywords:
Village Funds, Village Fund Allocation, Revenue Sharing From Taxes , Poverty LevelsAbstract
Poverty remains a persistent challenge in economic development and a central concern of Sustainable Development Goal 1. Although previous studies have examined the relationship between village fiscal transfers and poverty, most focus on a single transfer instrument and rarely assess village funds, village fund allocation, and local tax and retribution revenue sharing simultaneously over an extended period. This study examines the association between these three fiscal transfer instruments and poverty across 79 districts in Java from 2016 to 2023 using a balanced eight-year panel dataset. A fixed-effects model is employed, supported by descriptive statistics, panel-data diagnostic tests, hypothesis testing, and robustness checks. The results show that all three fiscal transfer instruments are significantly and negatively associated with poverty. village funds exhibit the strongest association, with a coefficient of -0.109, followed by local tax and retribution revenue sharing (-0.036) and village fund allocation (-0.014). The model is jointly significant, with an F-statistic of 173.344 (p < 0.001), while the adjusted R-squared of 0.957 indicates strong overall model fit, although part of this explanatory power reflects unobserved, time-invariant district characteristics captured by fixed effects. The negative associations remain robust after correcting for cross-sectional dependence using robust standard errors and after separate estimations for the pre- and post-COVID-19 periods. These findings suggest that strengthening village fiscal transfers, particularly village funds, alongside improved governance, transparency, accountability, and community participation, can support poverty reduction and help narrow regional disparities across Java. The study provides empirical evidence for designing more effective and equitable intergovernmental fiscal policies.
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