WHAT DRIVES LOCAL GOVERNMENT WELFARE SPENDING? A COMPARATIVE STUDY OF SPLIT AND UNSPLIT REGIONS IN SUMATRA, INDONESIA

The study examines and compares the role of the previous year's GRDP per capita, the previous
year's tax, sharing funds, and population toward the local government welfare spending between
split and unsplit regions in Sumatra, Indonesia. The study employs the panel data of
districts/cities in Sumatra from 2011 to 2020. The study applies the data panel regression
technique. Results show that the welfare spending determinant model differs between the two
regions. In split regions, the role of the previous year's tax, the previous year's GRDP per capita,
and population have a significant, positive effect on the local government welfare spending.
However, in unsplit regions, the previous year's tax has a significant positive effect, whereas the
sharing funds has a significant negative influence on the local government welfare spending. This
study recommends that local governments manage tax revenue by implementing intensive
taxation. The splitting of local government encourages the growth of the business sector. The
unsplit local governments should grow their income outside of sharing funds to increase welfare
spending.