Volume 7, Issue 12, December – 2022 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Regional Economic Growth: Effectiveness of

Local Revenues and Equalization Funds
Palipada Palisuri1, Thamrin Abduh2, Herminawaty Abubakar3, Yuyun Yuningsih4
1,2,3,4
Faculty of Economics and Business, Bosowa University, Makassar, Indonesia

Corresponding Author: Herminawaty Abubakar

Abstract:- The rapid development of regions requires a increase, because high economic growth is expected to be able
large allocation of development funds, causing local to absorb labor and reduce poverty rates.
government spending to also increase. The amount of
regional expenditure is determined by the amount of income Increasing local revenues must be done by local
of the region concerned. Regional income plays an governments in order to be able to finance their own needs, so
important role in the welfare of the community and creating that the dependence of local governments on the central
regional independence. This study aims to determine and government is reduced and in the end the regions can be
analyze the effect of Regional Native Income and independent. Each region in Indonesia has different financial
Equalization Fund on Economic Growth in Maros Regency. capabilities in supporting the financing of its regional activities,
This research was conducted in Maros district, South this is often the cause of fiscal inequality between regions due
Sulawesi Province, Republic of Indonesia. This research to the imbalance between regional revenues and regional
uses a quantitative approach with data collection methods expenditures. Therefore, to overcome fiscal inequality, the
in the form of data collection through documentation and Central Government allocates funds from the State Budget to
available data. The source of data in this study is in the form fund regional needs in order to implement decentralization. The
of secondary data, namely in the form of documents transfer of power and authority of regional government which
regarding the realization of local original income and was originally Centralized became Decentralization so that the
equalization funds obtained from the Regional Finance and government created regional autonomy [1]. The fund in
Assets Agency of Maros Regency and data on the realization question is the Equalization Fund which consists of the General
of economic growth seen from the Gross Regional Domestic Allocation Fund, the Special Allocation Fund, and the Profit
Product on the basis of constant prices obtained from the Sharing Fund. The Equalization Fund is a source of regional
Regional Development Agency of Maros Regency. Data revenue sourced from the State Budget to support the
analyzed using multiple linear regression analysis with IBM implementation of local government authority to achieve the
SPSS statistical program version 25.0. The results showed goal of granting regional autonomy, especially to improve
that (1) Regional Original Income had a positive and community services and welfare. The main purpose of
significant effect on Economic Growth, (2) the Equalization providing the Equalization Fund is to overcome fiscal gaps
Fund had a positive but not significant effect on economic between central and local governments, fiscal gaps between
growth. local governments, improve the tax system, and improve low
fiscal efficiency.
Keywords: Local Income, Equalization Fund, Economic
Growth. The implementation of regional autonomy that focuses on
districts and cities is characterized by the handover of a number
I. INTRODUCTION of authorities to determine the allocation of resources owned for
regional expenditures by adhering to the principles of
Economic growth is a picture of the economic condition compliance, needs, and regional capabilities listed in the
of a region, sustainable economic growth is a picture of the regional budget [2]. A region can be said to be an autonomous
work of the government, both nationally and regionally, in region if the regional government has the ability to dig up its
prospering and increasing the prosperity of the community. own finances. Autonomous regions must have the authority and
High economic growth comes from high regional revenues, so ability, and strive to minimize dependence on the central
the role of local governments must be able to explore the government as much as possible. Each level of government can
potential of the regions to become sources of regional income. manage its finances to finance its respective local duties and
The government is free to form policies and design government authorities, this can be said to be an ideal balance between the
finances that can affect the progress and prosperity of the central government and local governments [3].
region. With high economic growth, people's welfare will

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Volume 7, Issue 12, December – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Maros Regency is one of the districts authorized by the that Maros Regency can explore the potential of its region, so
central government to implement regional autonomy. With the as to reduce fiscal dependence and subsidies from the central
handover of authority, of course, the central government hopes government.

Table 1. Data on Economic Growth, Regional Native Income and Maros Regency Balance Fund 2015 -2020
No. Year Local Revenue (Rp) Equalization Fund (Rp) Gross Regional Domestic Product on the Economic
Basis of Constant Prices (Million Rp) Growth (%)
1 2015 141.487.686 759.792.905 10.916.729,1 8,44
2 2016 165.023.896 1.067.130.874 11.953.999,2 9,50
3 2017 194.999.054 903.546.699 12.768.318,4 6,81
4 2018 219.844.780 988.704.969 13.558.738,1 6,19
5 2019 203.706.048 966.759.310 13.726.282,7 1,24
6 2020 311.275.815 987.802.524 12.233.660,1 -10,87
Source : Central Statistics Agency of Maros Regency, 2022

Table 1 shows that central government assistance in the Economic growth is a way to see an increase in the
form of equalization funds can boost economic growth in Maros economic capabilities of a region. Every country certainly
Regency. The economic growth of Maros Regency in 2017- wants its people to be able to have a good level of welfare in
2019 decreased by 2.75%. In 2019 experienced a sharp decline order to have a good quality of life as well. Indicators that can
at 1.24%, this is because in that year people's movements began be used to see the level of public welfare through the size of
to be restricted due to the outbreak of the COVID-19 virus investment and the pace of economic growth. by knowing how
outbreak. In addition, economic growth in 2020 experienced a the pace of economic growth it has.
drastic decline of -10.87% from the previous year due to the
covid-19 virus stopped almost all economic activities. Investment is one of the important indicators for economic
growth. Investments can also help grow the business climate.
II. LITERATURE REVIEW The more investment is made, the more new businesses will
emerge. This will have an impact on the availability of jobs and
With the rapid development of each region in Indonesia, employment, will support the growth of purchasing power, so
this is in line with the beginning of the emergence of policies that it can help increase economic growth. Furthermore,
regarding regional autonomy and fiscal decentralization. The investment will have a positive impact on the production
implementation of decentralization is related to the central process in an increasingly enterprising business, then it will also
government and local government, one of which is the have an impact on increasing household consumption. In
establishment of autonomous regions and the legal handover of addition, the Economic Growth Rate is a chain index of each
power from the central government to local governments to take economic activity. The resulting index numbers can be based on
care of their respective governments and provide opportunities the prevailing price as well as the constant price. In general,
for regions to explore local potential for the realization of what is often used or analyzed by economists is the Economic
regional financial independence [2]. Regional Autonomy aims Growth Rate of constant prices, because it describes the real
to ensure that the Central Government can be separated from growth of production in each sector. The amount of this
unnecessary burdens in handling regional domestic affairs, thus percentage of economic growth is seen to determine the level
providing opportunities for regions to better learn, understand, of welfare of life owned by the community.
and respond to various matters in implementing government
policies [1]. An area with rapid and stable economic growth is able to
become a developed area. This is because this economic growth
A. Economic Growth is able to help in infrastructure development even better. As a
Economic growth is a picture of the economic condition result, facilities in various areas of life will also be better
of a region, sustainable economic growth is a picture of the fulfilled and maintain the welfare of their people. This growth
work of the government, both national and regional, in rate is viewed from year to year to find out whether growth is
prospering and increasing community prosperity [4]. Economic up or down.
growth is a benchmark for the development of economic
activities where goods and services produced by the community B. Local Revenue
increase in the long term or in other words, economic growth is The implementation of development in the regions
a process of changing economic conditions that are more requires a lot of funds and the regions cannot only expect
increasing than the previous year. A measure often used in equalization funds from the center, so the regions must be able
calculating national-scale economic growth is Gross Domestic to explore the potential of the regions to be used as financing
Product [4]. for routine expenditures and regional development
expenditures in order to increase their income [5][6]. Law No.

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Volume 7, Issue 12, December – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
33 of 2004 concerning Financial Balance between the central from sources within its own territory which is collected based
and local governments defines Regional Revenue is the right of on local regulations in accordance with applicable laws and
the local government which is recognized as the addition of the regulations [9]. The development of the original income of this
net worth value in the relevant year period and the local area is determined by how much the regional revenue
Original Revenue is the income obtained by the region and concerned is in accordance with the authority handed over to
collected based on local regulations in accordance with the local government, namely the authority to dig up its own
applicable laws and regulations. financial resources. Local governments can increase local
revenues, which through the results of managing these
Local income is a tax on the income or receipts of resources will be included in the revenues of Regional Original
individuals, companies, plantations, or land, securities or trusts. Revenues which will later be allocated as a source of funding
Local Revenue is revenue derived from sources within its own for local governments in addition to other sources of income
territory [7]. Local revenue is one of the sources of regional [10].
income obtained from sources of revenue in the regions in the
form of tax proceeds, regional levy proceeds, and the results of Apart from the Regional Original Income, regional
segregated regional wealth management. revenues are also sourced from equalization funds and other
legitimate income. When local revenues have not been able to
C. Equalization Fund meet local expenditures, local governments expect transfer
This growth rate is viewed from year to year to find out funds from the central government to cover local expenditure
whether growth is up or down. Meanwhile, for regions that only allocation funds annually. In this context, the equalization fund,
rely on revenue and revenue from the regions, they have not which is the regional revenue transferred from the center, is
been able to finance all the mandatory affairs proposed by the often used as a source of financing to fund all activities every
government. For this reason, a central fund is needed that is day [8]. The equalization fund is a fund from state budget
presented to the regions in an effort to reduce vertical and revenues allocated to regions (autonomous) to fund regional
horizontal inequality called the Equalization Fund. The details needs in the context of implementing decentralization, and
of income included in the balance fund are contained in Law economic growth itself is a continuous change in the state of the
Number 33 of 2004 concerning Financial Balance of the Central economy of a region for the better in a certain period of time.
Government and Regional Governments, namely the balance
fund sourced from the State Budget is divided into three, Economic growth is a benchmark that plays a vital role in
namely: Revenue Sharing Fund, General Allocation Fund, the development process of a region or country. Economic
Special Allocation Fund [8]. The General Allocation Fund is growth is characterized by an increase in real income per capita
allocated to provinces and districts or cities, where the [9]. Economic growth is a continuous increase in national
proportion of the General Allocation Fund for provincial areas income, namely by increasing per capita income in a certain
and for district or city areas is determined according to the calculation period. An increase in the amount of production and
balance of authority between provinces and districts or cities. output can be interpreted as economic growth, this indicator is
measured through the Gross Domestic Product or Gross
The Equalization Fund is a fund sourced from the receipt Regional Domestic Product of a region [7]. The ability of the
of the State Budget, which is allocated to the regions to finance region to manage local revenues and the Equalization Fund for
regional needs in the context of implementing decentralization. the welfare of the community determines the economic growth
In addition to assisting regions in funding their authority, the of the area.
equalization fund also aims to reduce inequality in funding
sources between the central and local governments and between III. RESEARCH METHODOLOGY
local governments the equalization fund is a system of
transferring funds from the government which is a unified A. Types of Research
whole. The purpose of the central government to transfer funds The research method that the author uses is a descriptive
to local governments is as a concrete action to reduce the method of analysis, namely a research method that describes
inequality of national income sharing, both vertically and and describe the situation that occurs in the present, then
horizontally and to improve the efficiency of government analyze and interpret the data obtained with certain analysis.
spending by handing over some of the authority in the field of The purpose of this study is to make systematic, factual and
state financial management so that it can be enjoyed by the accurate descriptions, drawings or paintings regarding the facts,
people in the regions concerned [3]. properties, as well as the relationship between the phenomena
investigated.
D. The Relationship between Local Revenues and Equalization
Funds with Economic Growth B. Data Type
The regional revenue sector plays a very important role, The types of data used in this study are primary data and
because through this sector it can be analyzed the extent to secondary data. Primary data is obtained through observation
which a region can finance government activities and regional and documentation, while secondary data is obtained through
development. Local Revenue is revenue obtained by the region books and other references in the form of previous research

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Volume 7, Issue 12, December – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
journals related to the object of study. The data studied are the Regional Native Income and Equalization Fund as independent
original regional income, balance fund and economic growth of variables on economic growth as dependent variables.
Maros Regency for the period 2015 to 2020. Data on the
realization of local original income and equalization funds IV. RESULTS AND DISCUSSION
obtained from the Regional Finance and Assets Agency and
data on the realization of economic growth in view of the Gross A. Analysis Results
Regional Domestic Product on the basis of constant prices 2010 Economic growth is an increase in output in the form of
obtained from the Regional Development Agency of Maros goods and services that describes the development of the
Regency. regional economy in a given year compared to the previous
year. Economic growth can also be interpreted as an increase in
C. Data Analysis Technology the economic production capacity of a region which is seen in
Data analysis techniques used in this study using software the form of an increase in national income. Regional revenue is
1) Microsoft Office Excel 2010 with the aim of knowing the a regional revenue that has been budgeted in the Regional
development of Regional Original Income and the Equalization Budget which includes all regional revenues through the
Fund obtained by the Maros County Local Government from regional general cash account, which in nature adds to regional
2015 to 2020, 2) Multiple Linear Regression Statistics Program revenues. Regional Original Revenue is income processed from
using SPSS 25 with the aim of determining the Effect of the region itself which is collected based on local regulations in
accordance with laws and regulations.

Table 2. Maros Regency Economic Growth Data 2012-2020

No Year Gross Regional Domestic Product Ln Gross Regional Domestic Product
(Rp) (%)
1 2012 9.044.451.000 22,93
2 2013 9.612.782.100 22,99
3 2014 10.067.224.600 23,03
4 2015 10.930.835.750 23,11
5 2016 11.953.999.200 23,20
6 2017 12.768.318.400 23,27
7 2018 13.558.747.500 23,33
8 2019 13.726.282.600 23,34
9 2020 12.233.282.600 23,23
Average 23,16
Source: Maros Regency Regional Development Agency, data processed 2022

Table 2 shows that economic growth in Maros Regency economic growth in Maros Regency has increased from year to
has increased. In 2012 it reached 11.14%, this is the highest and year although the percentage increase is still fluctuating.
lowest achievement in 2020 of -10.87%. This data indicates that

Table 3. Data on the Realization of Original Regional Income of Maros Regency in 2012-2020
No year Local Revenue Ln Local Revenue
(Rp) (%)
1 2012 60.364.408.988 24,82
2 2013 79.513.862.571 25,10
3 2014 118.267.910.133 25,50
4 2015 141.487.685.605 25,68
5 2016 165.487.675.628 25,83
6 2017 194.999.053.694 26,00
7 2018 219.813.979.862 26,12
8 2019 248.747.244.304 26,24
9 2020 219.096.914.071 26,11
Average 25,71
Source: Regional Finance and Assets Agency of Maros Regency, data processed 2022

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Volume 7, Issue 12, December – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
Table 3 shows that the original income of the region has income in 2012 was Rp. 60,364,408,988. This shows that the
increased every year. The highest local revenue was achieved income earned by Maros Regency from various sources within
in 2019 worth Rp. 248,747,244,304 while the lowest local its own territory has increased by an average of 25.71%.

Table 4. Maros Regency Balance Fund Realization Data for 2012-2020

No Tahun Equalization Fund Ln Equalization Fund
( Rp ) (%)
1 2012 541.142.617.873 27,02
2 2013 626.203.965.763 27,16
3 2014 713.906.816.093 27,29
4 2015 759.792.905.384 27,36
5 2016 1.067.130.874.537 27,70
6 2017 903.546.699.475 27,53
7 2018 988.704.968.934 27,62
8 2019 979.207.172.107 27,61
9 2020 882.646.034.275 27,51
Average 27,42
Source: Regional Finance and Assets Agency of Maros Regency, data processed 2022

The equalization fund is the transfer of funds sourced from to economic growth [11]. This is in line with the results of
the State Budget given to the regions to fund regional needs in research which states that local income and economic growth
order to carry out decentralization. Table 4 above shows that the have a positive relationship. Local revenue is a financial
equalization fund provided by the government to Maros structure obtained by the region to carry out development
Regency was stable with an average of 27.42% from 2012 to activities in its area [3][11].
2020. Based on tables 3 and 4 explained that the balance fund
disbursed by the government is greater than the original income Local revenues can contribute to the improvement of
of the Maros Regency area, this indicates that Maros Regency's Maros County's financial performance, because local income is
financial dependence on transfer income from both the central a resource that can be utilized in the context of regional
and provincial governments is relatively high. development so as to create economic growth. As one of the
sources of regional revenue, the original regional income will
Local financial dependence shows how much local reflect the level of regional independence. The higher and
governments depend on transfer revenues, both from the central greater the original regional income to the total regional
and provincial governments. The largest contribution of transfer income, this shows the independence of the region in financing
income is found in the Equalization Fund such as the General the development of the region.
Allocation Fund, which is one of the transfers of
central/provincial government funds to local governments  Effect of Equalization Fund on Economic Growth
sourced from state budget revenues, allocated with the aim of Based on the results of a partial significant test, it shows
equitable distribution of financial capabilities between regions that the equalization fund has a positive but not significant
to fund the needs of local governments in the context of effect on economic growth in Maros Regency, this is indicated
implementing decentralization. by the t-count value of 0.876 < t-table 1.94318 and the
significant value of the equalization fund of 0.415 > 0.05 so that
B. Discussion it can be interpreted that the balance fund variable has a positive
but not significant effect on Economic Growth in Maros
 Effect of Local Revenue on Economic Growth Regency. The results of the study can be related to the theory
The results of statistical data using the SPSS 25 program, that the equalization fund is a fund sourced from the State
show that partially the original regional income has a positive Budget which is allocated to the regions to fund regional needs
and significant effect on Economic Growth in Maros Regency in the context of decentralization [6]. Maros County
which is indicated by the t-count value of 2.921 > t-table 1.9438 Government local revenues derived from the equalization fund
in addition to the significant value of the original income of the consist of a tax or non-tax revenue sharing fund, a general
area 0.027 < 0.05 so it can be interpreted that the original allocation fund and a special allocation fund. The balance fund
income of the region has a positive and significant effect on from the central government received by Maros Regency is
economic growth in Maros Regency. This means that the higher used to reduce the fiscal gap between the central government
the original income generation of the region, the higher the and local governments. The level of regional financial
economic growth of the area. The results of this study are in independence will continue to increase if the original regional
accordance with the results of research which states that local income is greater than the equalization fund [2].
indigenous income has an influence that is directly proportional

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Volume 7, Issue 12, December – 2022 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
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