Sectoral public spending, human development, and income inequality in North Sumatra province: District-level evidence from Indonesia

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Type of the article: Research Article

Abstract
This study examines whether district-level public expenditures on education, health, and infrastructure enhance human development and reduce income inequality across 33 regencies/municipalities in North Sumatra Province, Indonesia. The study is situated within the context of fiscal decentralization, where local government spending is expected to improve basic service provision, yet substantial territorial disparities in welfare outcomes and fiscal capacity remain. Employed balanced panel data over the short 2021-2023 period, this study applies descriptive regional mapping, Hodrick–Prescott trend filtering, and panel regression models. Model selection is conducted using the Chow, Hausman, and Lagrange Multiplier tests. The trend analysis indicates positive associations between basic service expenditures and the Human Development Index (HDI), with infrastructure expenditure showing the strongest trend correlation, followed by health and education expenditures. However, the preferred random effects model reveals that education and infrastructure expenditures have positive but statistically insignificant effects on HDI, while health expenditure shows a negative and statistically insignificant coefficient. Poverty exerts a statistically significant negative effect on HDI, highlighting structural deprivation as a key constraint on human development. For income inequality, the preferred fixed effects model shows that infrastructure expenditure significantly reduces the Gini index, while GRDP per capita also has a significant inequality-reducing effect. These findings suggest that increasing public expenditure alone is insufficient to achieve inclusive development. Fiscal policy must therefore prioritize expenditure quality, spatial targeting, and implementation capacity to transform public budgets into equitable improvements in human development and income distribution.

Acknowledgments
The authors gratefully acknowledge funding support from the Scientific Publication Program of Universitas Sumatera Utara (USU), as well as institutional support that contributed to the completion of this research.

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    • Figure 1. Education expenditure and Human Development Index
    • Figure 2. Health expenditure and Human Development Index
    • Figure 3. Infrastructure expenditure and Human Development Index
    • Table 1. Variable definitions
    • Table 2. Panel regression results for Human Development Index
    • Table 3. Panel regression results for income inequality
    • Conceptualization
      Wahyu Ario Pratomo, Asmalidar
    • Data curation
      Wahyu Ario Pratomo, Asmalidar
    • Formal Analysis
      Wahyu Ario Pratomo, Asmalidar
    • Funding acquisition
      Wahyu Ario Pratomo
    • Investigation
      Wahyu Ario Pratomo, Asmalidar
    • Methodology
      Wahyu Ario Pratomo, Aryadimas Suprayitno
    • Software
      Wahyu Ario Pratomo, Asmalidar
    • Supervision
      Wahyu Ario Pratomo
    • Validation
      Wahyu Ario Pratomo, Asmalidar
    • Writing – original draft
      Wahyu Ario Pratomo, Asmalidar, Aryadimas Suprayitno
    • Writing – review & editing
      Wahyu Ario Pratomo, Asmalidar, Aryadimas Suprayitno
    • Visualization
      Asmalidar
    • Project administration
      Aryadimas Suprayitno
    • Resources
      Aryadimas Suprayitno
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Public and Municipal Finance
Public and Municipal Finance