Analysis of Local Government Financial Efficiency in Indonesia Using the Dea Approach

Regional financial efficiency has become an important issue in the implementation of fiscal decentralization in Indonesia because large public expenditures do not always produce optimal development outcomes. Differences in fiscal capacity, infrastructure, and governance quality among provinces create disparities in economic growth, human development, and poverty reduction. This study aims to analyze the level of local government financial efficiency in Indonesia during the 2018–2024 period using the Data Envelopment Analysis (DEA) approach. The research employs a quantitative explanatory design with a longitudinal approach. Secondary panel data were collected from the Central Statistics Agency (BPS) and the Directorate General of Fiscal Balance (DJPK). The input variables consist of education expenditure, health expenditure, road expenditure, and subsidy expenditure, while the output variables include Gross Regional Domestic Product (GDP) per capita, Human Development Index (HDI), and poverty reduction. The study applies an output-oriented DEA model with Variable Return to Scale (VRS) assumptions to measure relative efficiency among provinces. The results show that financial efficiency levels vary significantly across provinces. Several provinces, such as DKI Jakarta, East Kalimantan, Riau, and DI Yogyakarta, consistently achieved full efficiency, while Papua and West Papua remained relatively inefficient. Overall, regional financial efficiency in Indonesia showed gradual improvement during the observation period, although most provinces still experienced inefficiencies in converting public expenditure into optimal development outcomes. These findings indicate the importance of improving budget allocation effectiveness and strengthening regional financial governance to support equitable and sustainable development.