Evaluation of the Impact of Fiscal Policy on Reducing Inequality and Poverty in Indonesia

The issues of poverty and inequality are critical challenges in Indonesia, highlighted by a persistently high poverty rate and elevated Gini coefficient in recent years. These factors threaten the achievement of sustainable development goals. Fiscal policy, particularly through education and health expenditures and taxation, plays a crucial role in addressing these issues. This study investigates the effects of fiscal policy on poverty reduction and income inequality using secondary panel data from 2010 to 2023 across 34 provinces in Indonesia. The analysis employs multiple regression techniques to assess the impact of government spending on education and health, social protection, tax revenue, economic growth, and investment as control variables. Findings reveal that education and health expenditures significantly reduce poverty, while social protection spending appears to exacerbate it. Furthermore, the study indicates that tax policies contribute to rising income inequality and do not effectively alleviate poverty. These results suggest that local governments should prioritize increasing allocations for education and health programs aimed at impoverished communities and enhance the quality of expenditure implementation. Additionally, social protection measures require better targeting, and improvements in the tax redistribution mechanism are essential for promoting equitable income distribution. This research underscores the need for a more effective fiscal strategy to combat poverty and inequality in Indonesia.