Public Spending and Poverty Reduction in Indonesia: The Effects of Economic Growth and Public Spending on Poverty Reduction in Indonesia 2009-2018

*Hendrawan Toni Taruno  -  Badan Pusat Statistik Provinsi Jawa Tengah, Indonesia
Received: 22 Mar 2019; Published: 31 Oct 2019.
Open Access Copyright (c) 2019 The Indonesian Journal of Planning and Development

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Section: Articles
Language: EN
Statistics: 77


Over the past four decades, the number of people living below the poverty line in Indonesia has experienced a significant decline, from 40.10 percent in 1976 to 9.82 percent in March 2018. Nevertheless, the disparity of poverty rates between provinces is still quite high. The poverty rate in several provinces in Java island, for example, is already at the single digit level, while in Eastern Indonesia, is still above 20 percent. As it is known, public spending and economic growth are two important instruments on poverty reduction. This study aims to investigate the role of economic growth and public spending, particularly education, health, and social protection on poverty reduction in Indonesia. Using panel data from 31 provinces during 2009-2018 period, this study used two regression models to analyze the effects of economic growth and public spending on poverty reduction both in urban and rural areas. The study shows that public spending on health and education has a slightly different effect on poverty reduction in urban and rural areas. Convincingly, spending on health and education has proven to have a significant effect in reducing poverty in rural areas. While in urban areas, the decline of poverty rates is more influenced by spending on health. The study also shows that social protection spending and economic growth, did not have a significant effect in reducing poverty rates over the past 10 years. Therefore, in order to reduce poverty more effectively, it would be better for the government to focus its poverty reduction programs on investment in health and education sectors.

education; growth; health; poverty; public spending; social protection

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