Central and Local Taxes: Which Plays a Greater Role in Improving the Human Development Index in Indonesian Regencies and Cities?
DOI:
https://doi.org/10.61194/ijtc.v7i4.2340Keywords:
human development index, revenue sharing fund, local taxes revenue, panel data, taxesAbstract
Taxation plays a fundamental role in financing public services and promoting human development through fiscal decentralization. However, empirical evidence comparing the contributions of central and local taxes to human development remains limited. This study examines whether central tax revenue sharing (DBH) or locally generated tax revenues (LTR) play a greater role in improving the Human Development Index (HDI) across Indonesian regencies and municipalities. Using balanced panel data from 486 regencies and municipalities during 2018–2022, panel data regression is employed to estimate the effects of tax-based fiscal resources on HDI, controlling for gross regional domestic product (GRDP), government expenditure, population, and unemployment. The results show that both DBH and LTR have positive and statistically significant effects on HDI, indicating that taxation supports human development through fiscal equalization and local fiscal autonomy. The larger coefficient of LTR suggests a stronger marginal association with HDI than DBH. GRDP positively affects HDI, while government expenditure is negatively associated with HDI, highlighting the importance of expenditure quality rather than magnitude. Population is not statistically significant, whereas unemployment has a relatively small effect. These findings extend the fiscal decentralization literature by demonstrating the complementary roles of central and local taxation: DBH strengthens local fiscal capacity through revenue redistribution, while LTR enhances fiscal autonomy and responsiveness to local priorities. Improving human development therefore requires effective revenue sharing, stronger local revenue mobilization, and more efficient public expenditure, particularly for education, healthcare, and human capital development.
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