The Impact Of Fiscal Decentralization On Economic Growth: A Theoretical And Empirical Review

Abstract

Fiscal decentralization has become one of the public policy strategies in encouraging economic growth, especially in developing countries such as Indonesia. This article aims to review theoretically and empirically the relationship between fiscal decentralization and economic growth. Theoretically, decentralization can improve the efficiency of resource allocation, strengthen fiscal accountability, and encourage public service innovation. Empirically, however, the results vary depending on the fiscal capacity of the regions, the quality of the institutions, and the design of the decentralization policy itself. This study uses the Systematic Literature Review (SLR) approach to 40 relevant studies in the 2010–2024 range. The results show that fiscal decentralization has the potential to boost economic growth if supported by good governance and fair fiscal transfer mechanisms. These findings emphasize the importance of institutional reforms to optimize the benefits of decentralization for economic development.