The Effect of Regional Fiscal Capacity Index, Government Expenditure, and Inflation on Human Development in Indonesia

Abstract

Although still below the global average, Indonesia Human Development Index is increasing annually. The HDI of provinces in Indonesia also exhibited an upward trend. Fiscal capacity, government spending, and inflation are subject to continuous fluctuation. Consequently, this study aims to analyze the effects of regional fiscal capacity, government spending, and inflation on Indonesia's Human Development Index in both short and long terms. Secondary quantitative data were also used in this study. This study employs panel data obtained from the Ministry of Finance and Central Bureau of Statistics, focusing on 33 Indonesian provinces. The data used for this study comprised 594 observations, which were analyzed using the ARDL method. The results indicate that the fiscal capacity variable positively affects the Human Development Index in the short run but has no effect in the long run. The government expenditure variable does not affect the Human Development Index in the short term but exhibits a positive effect in the long term. Conversely, the inflation variable negatively affects the Human Development Index in the short term but positively affects it in the long term. The Indonesian government should implement more intensive policies to improve its HDI. This includes utilizing fiscal space with a budget that prioritizes education, health, economic improvement, and maintaining inflation stability to enhance people's welfare as an indicator of the HDI calculation. Researchers in the same field should consider incorporating additional variables and employing a larger sample size to produce more comprehensive, in-depth research and clearer results regarding the Human Development Index in Indonesia.