Regional Inequality In Indonesia: Is The General Allocation Fund (Dau) Likely To Have An Impact?

More than six years Indonesia has implemented the new fiscal decentralization policies. It substantiated one reform following the 1997 Asian economic crisis which had brought Soeharto era down. Changing the structure of the Indonesian government, the new decentralization scheme has transformed the central – local government relationship in a great extent. For Indonesia which has many islands and multi culture, Decentralization will give benefit to economic development. Decentralization makes the decision maker closer to the problem, hence, the solution will be more effective, efficient and accurate because the decision maker, in this term is local governments, are assumed to be more understand their region and the main problem in their authority rather than the central government. Using descriptive - empirical analysis, this paper tries to examine whether DAU is related to the income inequality, and more specifically whether DAU has an affect toward the inequality. Shown by the results which have been presented previously, there is an indication that DAU has an impact on inequality. There are three kinds of impacts. First, increasing DAU is followed by decreasing inequality. This condition happened in national level, Sumatera, and Jawa-Bali regions. Secondly, increasing DAU is followed by increasing Inequality. This occurs in Kalimantan and Sulawesi regions. Finally, increasing DAU is followed by fluctuate patterns of inequality. This also happens to others.