Fiscal dependence in a special autonomy region: evidence from a local government in eastern Indonesia

Abstract

This research aims to analyse the degree of fiscal dependence of local government upon the central government in the regency of Mimika, one of Indonesia’s eastern regencies. The ratio of fiscal decentralization is used to calculate the local government’s ability to increase its regional revenue in order to support development initiatives in all sectors (Malmudi, 2010). Secondary data of locally-generated revenue and total revenue from the period 2010-2015 are used to measure the degree of fiscal decentralization. The results show that the degree of fiscal decentralization in the regency remained at a low level, reflected from the average value of 12.92 percent with the highest degree, of 25.09 percent in 2012. An analysis of fiscal decentralization in the period 2010 – 2015, indicates that the regency lacked sufficient fiscal capacity, showing heavy dependence upon financing from the central government. The local government is expected to develop the region’s potentiality through creative efforts within their governmental apparatus to increase local revenues. The funds from the central government could provide a positive contribution if used in the consumption of goods and services that potentially support economic activities.