Environmental Protection Spending and Local Own-Source Revenue in Indonesia: A Panel Data Analysis

Abstract

This study examines the impact of environmental protection spending on Local Own-Source Revenue (PAD). The sample consists of 34 provinces in Indonesia from 2016 to 2022. Data were obtained from the Central Statistics Agency (BPS) and the Ministry of Finance. A panel regression model was used. The analysis was conducted at three levels: nationally, classified based on Environmental Quality Index (IKLH) values, and classified based on Western and Eastern Indonesia. The results show that, at the national level, Environmental Protection Expenditures (BPL) have no effect on PAD. For classifications based on the IKLH, in both Moderate and Good categories, BPL has no significant effect on PAD. Regarding the classification by region, in the Western Indonesia region (KBI), BPL has a significant positive effect on PAD. Meanwhile, in the Eastern Indonesia region (KTI), BPL has no effect on PAD. This indicates that spending on environmental protection has not served as an effective fiscal instrument in increasing Local Own-Source Revenue (PAD) in most regions during the 2016–2022 period, except with a very small impact in the Western Indonesia region (KBI). GDP remains the primary factor in increasing Local Own-Source Revenue across all regional categories. However, the central government can contribute to ensuring that local governments focus more on environmental issues by improving the quality and targeting of environmental spending.

Keywords:  Environmental Protection Spending, Local Own-Source Revenue (PAD), Panel Data Analysis, Fiscal Decentralization, Environmental Quality Index (IKLH), Indonesia