Muhlisin, Waspodo Tjipto Subroto, Norida Canda Sakti
The study aims to examine the influence of fiscal decentralization on sectoral shifts and inequality in 38 districts and cities in East Java from 2014 to 2023. The research evaluates regional inequality using poverty rates as a key indicator and explores how fiscal decentralization affects sectoral changes, particularly in the primary sector. The study measures fiscal decentralization by the ratio of Local Own-Source Revenue (PAD) to total revenue and analyzes sectoral shifts using a sectoral change index. The research focuses on the relationship between per capita income, population size, fiscal capacity, unemployment rates, and these sectoral transitions and inequality patterns across the regions. Per capita income negatively impacts sectoral transitions, reducing the dominance of the primary sector as income rises. Population size has a positive but minor effect on sectoral transitions. Fiscal capacity and unemployment rates negatively influence sectoral transitions, though insignificantly. Fiscal decentralization negatively correlates with sectoral changes but significantly worsens regional disparities. Urban areas with high per capita income experience greater income inequality, while regions with large populations and high poverty rates face more severe disparities. Fiscal decentralization plays a role in increasing regional inequality while slowing sectoral shifts, particularly reducing the importance of the primary sector. Economic growth contributes to urban inequality, and areas with high poverty and large populations face greater disparities. The study suggests focusing on policies that improve human capital, promote economic diversification, and enhance the efficiency of fiscal decentralization to reduce inequality and support more balanced sectoral transitions in East Java. ©2025 The authors.
Faculty of Economics and Business, Universitas Negeri Surabaya, Surabaya, 60231, Indonesia
