<![CDATA[Despite substantial fiscal transfers, the welfare impact of Indonesia’s fiscal decentralization remains debated. This study evaluates the technical efficiency of 33 provincial governments in converting fiscal transfers into poverty reduction and identifies their critical determinants. Using a two-stage approach, efficiency scores are estimated through Data Envelopment Analysis (DEA), followed by Tobit regression with robustness checks using random-effects Tobit and Simar–Wilson bootstrap procedures. The results reveal that provincial fiscal efficiency remains relatively low, with an average score of 0.498, implying considerable managerial inefficiency in local fiscal management. Significant regional disparities are also observed, with western provinces generally outperforming eastern regions. Among the determinants, human capital measured by the Human Development Index (HDI) emerges as the most robust positive predictor of efficiency across all specifications. In contrast, population size consistently reduces efficiency because of congestion effects. Regional economic capacity shows a positive association in the baseline model, but becomes specification-sensitive under bias-corrected procedures, suggesting that its effect operates primarily as a structural correlate rather than a direct causal mechanism. Overall, the results highlight that fiscal decentralization effectiveness depends more on institutional quality and human capital capacity than on fiscal expansion alone.]]>
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