Mirna Indriani

Type of the article: Research Article

Abstract
This paper aims to examine the influence of fiscal decentralization, budget governance, and budget allocation on financial performance and their implications on public welfare in the local governments of Indonesian districts (regencies) and municipalities (cities). Panel data were collected from 514 district and municipal governments across 34 provinces. Purposive sampling resulted in 225 audited financial reports from 2018 to 2022. The data analysis employed descriptive statistics, correlation tests, and panel regression. Model selection was conducted using the Chow test, and all analyses were performed in EViews. The results showed that only three of the eight hypotheses were supported. Fiscal decentralization has a negative impact on both budget allocation and financial performance, with no significant effect on public welfare. Budget governance demonstrates a dual effect: it significantly reduces budget allocation but enhances both financial performance and public welfare. While budget allocation positively influences financial performance, this improvement paradoxically reduces public welfare. These findings suggest that fiscal autonomy alone is insufficient to improve welfare outcomes. Instead, effective budget governance and equitable allocation mechanisms are essential.

Type of the article: Research Article

Abstract
Budgetary slack continues to pose governance challenges in public sector budgeting, including in government systems operating under Islamic principles. This study investigates the effects of budget participation, budget emphasis, information asymmetry, and group cohesiveness on budgetary slack and examines the moderating role of Islamic religiosity within a Sharia-based public governance system in Aceh, Indonesia. Survey data were collected from 319 provincial, district, and city government officials directly involved in budget preparation and analyzed using partial least squares structural equation modeling (PLS-SEM). The findings indicate that budget participation (β = 0.187; p = 0.004), budget emphasis (β = 0.235; p < 0.001), information asymmetry (β = 0.249; p < 0.001), and group cohesiveness (β = 0.118; p = 0.049) positively and significantly influence budgetary slack, with the model explaining 54.2% of its variance (R² = 0.542). Islamic religiosity also shows a positive direct effect and significantly strengthens the relationships between budget participation and budgetary slack (β = 0.161; p = 0.003) and between information asymmetry and budgetary slack (β = 0.168; p < 0.001), while it does not moderate the effects of budget emphasis or group cohesiveness. These results suggest that religiosity does not function as a structural safeguard against discretionary budgeting behavior. Instead, agency incentives and information asymmetry remain central in shaping budget outcomes. The findings highlight the importance of reinforcing transparency, accountability frameworks, and internal control systems in Islamic-based municipal and provincial governments to enhance public financial governance.

Acknowledgment
This study was supported by a Doctoral Dissertation Research Grant (Penelitian Disertasi Doktor) for Fiscal Year 2024 from the Indonesian Ministry of Education, Culture, Research, and Technology (Kemendikbudristek), under Contract No. 600/UN11.2.1/PG.01.03/SPK/DRTPM/2024.