Fiscal Decentralization of the Government of the City of Surabaya Indonesia

Surabaya City Government is part of the regional government system in Indonesia which adopts a decentralized system. In line with these various regulations, regional fiscal or financial management consists of three main components, namely Regional Revenue, Regional Expenditure, and Regional Financing. This study aims to calculate the fiscal potential of the City of Surabaya for the 2017-2021 period. Furthermore, to obtain and complete optimal results, research uses a quantitative approach. The results showed that the economic growth of Syria showed good performance. However, in terms of inflation, the numbers also continue to increase. It is recommended to the Surabaya City Government that inflation control must be carried out through various policies that can increase economic growth that can improve people's welfare.


Introduction
Surabaya City is the capital of East Java Province, Indonesia as well as the largest metropolitan city in the province.
Surabaya is also the second largest city in Indonesia after Jakarta. Surabaya has an area of approximately ± 326.81 km², and 3,158,943 residents in 2019. (Note 1) Surabaya City Government is part of the regional government administration system in Indonesia, which adopts a decentralized system in regulating and managing government affairs by itself.
The Surabaya City Government is led by a democratically elected Mayor. Meanwhile, as an autonomous region, the Government of the City of Surabaya must be able to provide regional finance consisting of three main components, namely Regional Revenue, Regional Expenditure, and Regional Financing. In this context, the fundamental question is the extent to which the fiscal capacity of the Surabaya City Government, whose mayor is Tri Sri Rismaharini (Risma) for the 2017-2021 period.

Research Purposes
This study aims to calculate the fiscal potential of the Surabaya City Government for the 2017-2021 period.

1.
Is the effectiveness and efficiency of fiscal decentralization in the City Government of Surabaya?

2.
Is fiscal decentralization in the City Government of Surabaya able to improve the welfare of the people? 2. Literature Review

Fiscal Decentralization
Fiscal decentralization in Indonesia is still often debated, especially in terms of its effectiveness and efficiency when compared to previous policies or with a centralized system. In this connection, Martinez-Vazquez and McNab (2001) suggest that some of the fundamental reasons that governments in developing countries choose to do fiscal decentralization are: (Note 2) 1.
With fiscal decentralization, it is expected that government spending will be more efficient.

2.
With fiscal centralization recognized as having experienced a failure.

3.
The role of local governments will be greater and local governments will not be dictated by the central government.
In Indonesia, fiscal decentralization is based on Law of the Republic of Indonesia Number 33 of 2004 concerning Financial Balance between Central and Regional Government. (Note 3) This law describes decentralization as the transfer of authority of the Central Government to the Government to autonomous Regions to regulate and manage government affairs in the system. (2009) stated that fiscal decentralization is expected to improve people's welfare. Thus, what deserves special attention in relation to fiscal decentralization policies in order to be successful is that this policy must be followed by clear and effective authority between the central government and regional governments. The policy must be fair and transparent, especially in terms of transfer of funds from the central government to local governments. (Note 4)

Rodriguez-Pose danKroijer
Tiebout's research (1956) found that one of the advantages of fiscal decentralization is that decentralization will increase the economic efficiency of local governments because the government will be better able to provide better services to its citizens. (Note 5) According to PranadBardhan (2002), a study on fiscal decentralization states that many decentralization policies are not successful, especially in improving the welfare of the community. (Note 6) Based on the Law of the Republic of Indonesia Number 33 of 2004, regional revenue in the implementation of decentralization consists of regional income and financing, (Note 7) and Other Legitimate Regional Revenue. (Note 8)Meanwhile, the financing comes from the excess of the regional budget calculation; receipt of regional loans, regional reserve funds; and proceeds from the sale of separated regional assets. (Note 9) The amount of this regional revenue will largely determine government spending.

Regional Original Income
Regional Original Income consists of regional taxes, regional levies, proceeds from the management of separated regional assets and other legal regional income.

Balancing Fund
Balancing funds consist of profit sharing funds, general allocation funds and special allocation funds. This balancing fund aims to reduce the fiscal gap between the government and local governments. This balancing fund consists of: Production Sharing Funds, General Allocation Funds, and Special Allocation Funds. The amount of the balance fund for each fiscal year is stipulated in the State Budget.

Local Government Expenditures
Regional government spending is inseparable from regional revenue, because theoretically, spending is a function of regional revenue. The higher the regional income, the higher the level of regional spending. For this reason, the regions try to increase their own local revenue with local governments trying to increase their own local revenue and the balance fund.

Investation
Investment is defined as the accumulated form of an asset with the hope of obtaining future benefits. Budi Supriyatno (2018) said that investment in the economy has a very important role, especially in moving the economy. According to Huang (2009) states that private investment has a positive impact on economic growth. (Note 10)

Economic Growth
Todaro and Smith (2006) stated that in this case there are three main factors or components that are important in the economic growth of a country or region. The first is what is the level of capital accumulation which includes all forms or types of new investment allocated in the economy. Second is how much the population growth rate will increase the number of labor force, and Third is the level of technological progress that will directly affect the production process and ultimately increase the quantity of production. (Note 11) Similar to Todaro, Romer's (2001) growth theory focuses on four variables, namely output (Y), capital (C), labor (L) and Knowledge or the effectiveness of labor (K) (Note 12).
Romer's g Economic demand, This form demand f The abov This mean also incre

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The data 2017-202 The analy The quan model is d equations

b. Regional Retribution
The results of the estimation of the parameters of the regional levy acceptance equation are presented in Table 1 No. 2. It can be seen that the local retribution receipts in the Surabaya City Government are below.

c. Balancing Fund
Apart from originating from local revenues, the Surabaya City Government also receives transfers of funds from the central government in the form of balance funds consisting of tax and non-tax revenue sharing and general allocation funds.mTax Profit Sharing The results of the estimation of the tax revenue sharing equation parameters are in Table 1 No. 3.

Non-Tax Profit
Sharing The estimation results of the non-tax profit sharing equation parameters are presented in Table 1 No. 4. It can be seen that the non-tax revenue sharing of the Surabaya City Government.

General Allocation Fund
The results of the estimation of the parameters of the general allocation funds equation are presented in Table 1 No. 5. It can be seen that the receipt of general allocation funds. Local capacities and needs usually will not change drastically over time. Apart from that, the relatively stable general allocation funds from time to time will also help the sustainability and certainty of development financing in a region. General Allocation Fund. See

Regional Expenditure Fiscal Block
The structure of regional government spending in this study blocks regional expenditures divided into personnel spending, goods and services expenditures and other expenditures.

a. Employee Spending
The results of the estimation of the employee expenditure equation parameters are presented in Table1 No. 6. It can be seen that the expenditure for employees of the Surabaya City Government is significantly influenced by the fiscal capacity and the number of employees owned by the Surabaya City Government. The estimated parameter of fiscal capacity is 0.246921 and has a positive relationship, which means that the increase in the financial capacity of the Surabaya City Government has the potential to increase expenditure for employees. Meanwhile, the estimated number of employees is 134996.3 and has a positive relationship, which means that an increase in the number of employees in the Surabaya City Government will increase spending to pay employees. This is understandable because each new employee recruitment must be followed by a budget to pay the employees.

b. Shopping for goods and services
The results of the estimation of the parameters for the goods and services expenditure equation are presented in Table 1 No. 7. It can be seen that the expenditure of goods and services by the Surabaya City Government. The estimated parameter of fiscal capacity is 0.064452 and has a positive relationship, which means that an increase in the financial capacity of the Surabaya City Government has the potential to increase spending on goods and services.

Block GRDP
In the economy, gross regional domestic product (GRDP) is very important because this indicator can be used to measure the economic condition of a region. In addition, GRDP is also an indicator that can be used to measure the economic growth of a country, region or region. In macroeconomic theory, GRDP is the identity equation of household consumption, investment, government spending, exports and imports.

a. Household Consumption
The results of the estimation of the total household consumption equation parameters are presented in Table 1 No. 8. It can be seen that the total household consumption is significantly influenced by disposable income and consumption in the previous year.
The estimated disposable income parameter is 0.411206 and has a positive relationship, which means that an increase in disposable income has the potential to increase its consumption value. From the value of these parameters, it can also be seen that the average city of Surabaya only spends about 41 percent of their disposable income for consumption.

b. Investation
The results of the estimation of the investment equation parameters are presented in Table 2 No. 9. It can be seen that the investment value in the Surabaya City Government is significantly affected by the GRDP and the amount of public savings stored in banks. The estimated parameter of GRDP is 0.253026 and has a positive relationship, which means that an increase in GRDP has the potential to increase the value of the investment that occurs.
The estimation results of these parameters also indicate that the greater the economic capacity of a region, it will encourage investment in that area. One of the sources of funds for investment is from banks, while the credit provided by banks is very much influenced by the amount of public savings they save.
The estimated parameter of public savings is 0.329854 and has a positive relationship, which means that the greater the public savings funds deposited in banks have the potential to increase the value of investment that occurs.

c. Government Expenditure
Even though the value is relatively small, government spending has a very important role in turning the economy in the Surabaya City Government. This is due to the participation of the government as a regulator and controller of all economic activities that occur, as well as distributing the required aspects to all levels of society. See Table 2 No. 10. Estimation Results of the Surabaya City Government Government Expenditure Equation Parameters for 2017-2021.
Surabaya City Government expenditure is influenced by the total expenditure budgeted in the regional expenditure budget. The estimated parameter of total expenditure is 2.530813 and has a positive relationship, which means that an increase in government spending has the potential to increase the role of government spending in the economy.

d. Export of Goods and Services
The results of the estimation of the export equation parameters are presented in Table 2 No. 11. It can be seen that the export value of the Surabaya City Government is significantly influenced by GRDP, the rupiah exchange rate against the US dollar and the export value of the previous year.
The estimated parameter of GRD is 0.313411 and has a positive relationship, which means that an increase in GRD has the potential to increase the value of exports of goods and services. The results of the estimation of these parameters also indicate that the greater the economic capacity of a region, it will boost the region's exports.
The estimated parameter of the rupiah exchange rate against the US dollar is 0.313411 and has a positive relationship, which means that the weakening of the rupiah exchange rate against the US dollar has the potential to increase the value of exports of goods and services. This occurs because the weakening of the rupiah against the dollar causes domestic goods to be cheaper than abroad, so producers tend to sell their goods abroad to get bigger profits.

e. Imports of Goods and Services
The results of the estimation of the import equation parameters are presented in Table 2. No. 12. In Table 12, the estimated GRD parameter is 0.56832 and has a positive relationship, which means that an increase in GRD has the potential to increase the value of imported goods and services. The estimation results of these parameters also indicate that the greater the economic capacity of a region, it will encourage imports of that region. This occurs because some products are highly dependent on imported goods, so that when demand increases, imports of raw materials will increase.
The estimated parameter of the rupiah exchange rate against the US dollar is 3249.55 and has a negative relationship, which means that the weakening of the rupiah exchange rate against the US dollar has the potential to reduce the value of imports of goods and services. This occurs because the weakening of the rupiah against the dollar causes domestic goods to be more expensive than abroad so that producers tend to sell their goods domestically to get bigger profits.

a. Consumer Price Index
The results of the estimation of the parameters of the Consumer Price Index (CPI) equation are presented in Table  2 No. 13. It can be seen that the CPI is significantly influenced by the money supply, the rupiah exchange rate against the United States dollar, and the retail price of fuel.
The estimated money supply parameter is 9.99 × 10-6 and has a positive relationship, which means that the increase in the money supply triggers an increase in the CPI and thus triggers inflation. Meanwhile, the estimated parameter of the rupiah exchange rate against the US dollar is 0.001294 and has a positive relationship, which means that the weakening of the rupiah exchange rate against the US dollar can trigger inflation. This is because the weakening of the rupiah against the US dollar causes domestic prices to be more expensive than foreign goods, or in other words, domestic prices increase.
The estimation parameter for the retail price of Fuel oil is 0.002287 and has a positive relationship, which means that the increase in fuel prices can trigger an increase in the CPI and thus trigger inflation. This is because Fuel oil is one of the main energy sources for the business world, so that the increase in fuel prices will cause an increase in production costs.
As a result, the price of the product also tends to rise to cover production costs.

b. The Exchange Rate of Rupiah against United States Dollar
The results of the estimation of the parameter of the rupiah exchange rate equation against the US dollar are presented in Table 2 No. 14. In Table 14, the estimated inflation rate parameter is 51.78111 and has a positive relationship, which means that inflation can trigger a weakening of the rupiah exchange rate against the US dollar.

c. Money Supply
The results of the estimation of the money supply equation parameters are presented in Table 3 No. 15. It can be seen that the money supply in the Surabaya City Government in 2017-2021 is influenced by the real GRD of the City of Surabaya.
The estimated parameter of real GRDP is 0.0037106 and has a positive relationship, which means that an increase in real GRDP can trigger an increase in the money supply. This is due to the increase in GDP, which means that an increase in economic capacity will require more money, so that the money supply also increases.

a. Human Development Index
The results of the estimation of the parameters for the human development index (HDI) equation are presented in Table 3 No. 16. It can be seen that the HDI in Surabaya is influenced by the average length of schooling.
The estimated parameter of average length of schooling is 2.203457 and has a positive relationship, which means that an increase in the average length of schooling will increase the HDI. This is because the average length of schooling is one component of the HDI calculation.

b. Number of Poor Population
The results of the estimation of the parameter of the equation for the number of poor people are presented in Table  3 No 17. It can be seen that the number of poor people in the city of Surabaya is influenced by the inflation rate and the number of poor people in the previous year.
The estimated inflation rate parameter is 0.861547 and has a positive relationship, which means that inflation will trigger an increase in the number of poor people. This is because if there is inflation, the real income of the community will decrease, so that people who are slightly above the poverty line can fall into poverty.

c. Average Length of Schooling
The results of the estimation of the parameter equation for the average length of schooling are presented in Table 3 No. 18. It can be seen that the average length of schooling for residents of Surabaya City is 0.933656. This can happen as people's income improves, in addition to the tendency for parents to want their children to have a better education than them.

d. Labor Absorption
The results of the estimation of the parameter of the equation for the number of workers are presented in Table 3 No. 19. It can be seen that the number of workers in the Surabaya City Government is 0.933656. This is influenced by the real GRDP. The measurement standard with the estimated real GRDP parameter has a positive relationship with the amount of labor absorbed. Where an increasing economy will be followed by rapid workforce growth. This implies that an increase in real GDP will increase the amount of labor absorbed. This is because the increase in economic capacity will require more labor. This absorption is a positive aspect in itself when viewed from the standard measurement of the estimated GRDP parameters.

FISCAL POTENTIAL PROJECTIONS
Based on the calculations and models described in the previous description, the results of the projected fiscal potential of the Surabaya City Government for 2017-2021 can be described as in the following table. Source: Processed data by Researchers 20 August 2020.
The data in Table 4 is the result of economic projections without any policy intervention, either by the Central Government or the City Government of Surabaya. Thus it can be said that the economic condition is a non-policy condition or a Business As Usual condition.

1.
Fiscal decentralization in the City Government of Surabaya has been effective and efficient, this can be seen in the 2017-2021 economic growth.

2.
Fiscal decentralization in the Surabaya City Government has been able to improve community welfare. This is indicated by the total revenue received by the Surabaya city government which continues to increase.

1.
The economic growth of the Surabaya City Government in 2017-2021 shows a fairly good performance. However, in terms of inflation, it also continues to show improvement. For this reason, it is recommended that inflation control should be carried out through various policies.

2.
In order for the fiscal capacity of Surabaya City to continue to grow well, it is suggested that the formulation of regional expenditure policies be directed at activities that can increase economic growth and improve the welfare of the community.