Jihan Lyra Vhina, Al Muizzuddin Fazaalloh

The impact of fiscal decentralization on tourism development in Java Island: A study of district/city level data

Introduction

The impact of fiscal decentralization on tourism development in java island: a study of district/city level data. Analyze fiscal decentralization's impact on Java Island tourism using district/city data. Positive for domestic tourists, no effect on international visitors.

Abstract

Java Island was the center of tourism activities in Indonesia and contributed the most to national tourist activity. However, the development of tourism among regions in Java Island still showed imbalances. Significant variations between regions indicated the need for a local-based approach to maximize tourism potential. In this context, fiscal decentralization plays an important role because it gives local governments more flexibility to manage local resources and design development policies according to the characteristics of their regions. This study aimed to analyze how fiscal decentralization influenced tourism development on Java Island and whether its impact differed across tourist segments. The analysis method used in this study was panel data regression with data from districts/cities during the 2010–2023 period. The results showed that fiscal decentralization contributed positively and significantly to the total number of tourists. However, there are differences in the impact between international and domestic tourists. Fiscal decentralization did not influence international tourist arrivals, but had a positive effect on domestic tourists. These findings indicated that the mechanism of strengthening regional fiscal capacity has not been able to attract international tourists, but it effectively stimulated domestic tourist movement through improvements in public services, local infrastructure, and tourism facilities. Thus, fiscal decentralization can be positioned as a strategic policy instrument to strengthen domestic tourism performance, while the development of international tourists required the support of macroeconomic factors and cross-regional policies that are not addressed at the district/city level.

Review

This study addresses a highly pertinent topic concerning the interplay between fiscal decentralization and tourism development, specifically focusing on Java Island, a critical hub for Indonesia's tourism sector. The authors effectively highlight a significant research gap: the persistent imbalance in tourism development across regions within Java, underscoring the necessity of localized approaches. By aiming to analyze how fiscal decentralization influences tourism development and whether its impact varies across international and domestic tourist segments, the study sets a clear and important objective. The chosen methodology, panel data regression applied to district/city level data over an extensive period (2010–2023), appears robust and suitable for this type of analysis. The findings present a nuanced and valuable contribution to the literature. The study successfully demonstrates a positive and significant overall contribution of fiscal decentralization to the total number of tourists. Crucially, the disaggregated analysis reveals a differential impact: fiscal decentralization positively influences domestic tourist arrivals while showing no significant effect on international tourists. This distinction is thoughtfully interpreted, suggesting that improved regional fiscal capacity effectively stimulates domestic tourism through enhancements in public services, local infrastructure, and tourism facilities. However, the mechanism seems less effective in attracting international visitors, implying that their motivations are driven by factors beyond the immediate scope of district/city level fiscal autonomy. The study's strength lies in its timely investigation, relevant geographic focus, and the detailed segmentation of tourist types, which provides a more granular understanding than aggregate analyses. The implications are substantial, positioning fiscal decentralization as a strategic instrument for bolstering domestic tourism performance. While the study effectively identifies the limitations of district-level fiscal policies in attracting international tourists, future research could delve deeper into the specific macroeconomic and cross-regional factors that *do* influence international arrivals, potentially through multi-level modeling or case studies of successful international tourism destinations within similar decentralized contexts. Overall, this paper offers a solid contribution to the understanding of regional tourism policy and development, providing clear guidance for policymakers in strengthening domestic tourism.

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