The Effect of Social Spending on Poverty Reduction: Evidence from District/Municipality Level in Indonesia

Abstract

This thesis analyses the effect of government social transfer, GDP per capita, and mean years of schooling on poverty reduction at the district level. The focus is on the impact of the social transfer on the poverty rate and poverty gap reduction in 504 districts and municipalities between 2015 and 2020. The study uses this period because the Indonesian government increased the budget for social transfer in 2015. The study finds that social transfer negatively affects the poverty rate, but the social transfer is not significant in reducing the poverty gap. These findings suggest that social transfer is less beneficial for the poorest population. One possible reason is that the poorest population lacks social assistance support. For more efficient poverty reduction, the government should update the Indonesia Unified Database and ensure the poorest population receive two or more social transfer programs. The results also demonstrate that GDP per capita only negatively influences the poverty rate. Interestingly, the study shows that mean years of schooling negatively affect the poverty rate and poverty gap.