The exploration of effect of financial performance to the public welfare

The purpose of this paper is to test the effects of the financial performance of local governments to the level of welfare in 25 city/regency in South Sulawesi during 2009–2014.

The financial performance is measured by the rate of local autonomy, the effectiveness of local own-source revenue, budget harmony and budget absorption, while the welfare society measured by the Human Development Index (HDI), unemployment and poverty level.

The regression analysis showed that the performance of region autonomy proved to increase the HDI over the next year and to reduce the poverty rate in two and three years ahead, however, has no correlation with the unemployment. The effectiveness of local own-source revenue can lower unemployment at two and three years ahead but failed to increase the HDI and to reduce poverty. Harmony of spending also neglected to raise the HDI and to reduce the level of unemployment although it can alleviate poverty. The level of budget absorption can improve HDI and reduce the unemployment at two and three years ahead, but failed to lower poverty. Expenditure harmony and budget absorption failed to moderate the relationship between local autonomy, the effectiveness of local own-source revenue and all measurement of welfare, while the expenditure harmony able to moderate the relationship between the effectiveness of local own-source revenue and HDI.

To the best of authors’ knowledge, no previous study has comprehensively studied the effects of level of regionality autonomy and effectivity of local own-source revenue to public welfare, and the moderation effect of Expenditure harmony, budget absorption in relationship between financial performance of local government to public welfare, especially in Indonesia.