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

Type of the article: Research Article AbstractThis 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.