Factors influencing budget allocation, financial performance, and public welfare in Indonesian district and municipal governments

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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.

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    • Table 1. Descriptive statistical results
    • Table 2. Summary of test results for each model
    • Table 3. Test results for H1 and H4
    • Table 4. Test results for H2, H5, and H7
    • Table 5. Test results for H3, H6, and H8
    • Conceptualization
      Adnan, Mirna Indriani, Darwanis, Syukriy Abdullah
    • Data curation
      Adnan, Darwanis, Syukriy Abdullah
    • Formal Analysis
      Adnan, Mirna Indriani, Darwanis, Syukriy Abdullah
    • Funding acquisition
      Adnan, Mirna Indriani, Syukriy Abdullah
    • Investigation
      Adnan, Darwanis, Syukriy Abdullah
    • Methodology
      Adnan, Mirna Indriani, Darwanis, Syukriy Abdullah
    • Project administration
      Adnan
    • Resources
      Adnan, Syukriy Abdullah
    • Software
      Adnan, Darwanis
    • Visualization
      Adnan
    • Writing – original draft
      Adnan, Darwanis, Syukriy Abdullah
    • Writing – review & editing
      Adnan, Mirna Indriani, Darwanis, Syukriy Abdullah
    • Supervision
      Mirna Indriani, Darwanis, Syukriy Abdullah
    • Validation
      Mirna Indriani, Darwanis, Syukriy Abdullah