Regional Government Budgets and Human Development Outcomes Across Indonesia’s Provinces : (Study Case of Provinces in Indonesia

This research paper aims to examine the effect of government spending, particularly in education and healthcare, on human development outcomes in 33 provinces of Indonesia from 2002 until 2012. The Human Development Index (HDI) is used to indicate the level of human well-being, as it has been proposed by the United Nation Development Program (UNDP) to compare human capabilities across diverse localities. The model built in this paper employs panel regression, and shows a variety of expected and unexpected relationships between HDI and several dependent variables. Health, agriculture and household expenditures each had a positive effect on HDI, while education and infrastructure expenditure were not significantly related. On the revenue side of provincial budgets, this paper finds that original income (PAD) had a much more position impact of HDI as all three forms of central government transfer: general allocation funds (DAU), special allocation funds (DAK) and revenue sharing funds (DAK). The outcomes suggest that the significant variety of revenue sources and expenditure strategies among Indonesia’s provincial governments also translated into strongly divergent human development outcomes.