Analysis Of Fiscal Decentralization, Economic Openness Towards Inequality Income in Indonesia

Abstract

The study employs a quantitative approach using panel data regression, covering 34 provinces in Indonesia over the period 2016–2023. The data were obtained from the Statistic Indonesia and the Ministry of Finance. Model selection was conducted through the Chow test, Hausman test, and Lagrange Multiplier test, which indicated that the random effect model was the most appropriate for this study. The results show that economic openness and the human development index have a negative and significant effect on regional inequality. This indicates that greater engagement in international trade and improvements in human capital quality can reduce inequality across regions. Meanwhile, fiscal decentralization and the democracy index do not have a significant effect, suggesting the need to evaluate the effectiveness of fiscal and institutional policies at the regional level. This research highlights the importance of focusing development strategies on enhancing human capital and equitable access to economic opportunities to reduce interregional disparities in Indonesia.