Dian Zulfa

Type of the article: Research Article

Abstract
Vertical fiscal imbalance within fiscal decentralization systems and the growing scale of green fiscal spending raise crucial questions about how fiscal structure and environmentally oriented government spending shape green economic growth. This study aims to investigate the impact of vertical fiscal imbalance and green fiscal spending on green economic growth in Indonesia from 2010 to 2022. A descriptive-quantitative approach and econometric methods, including Fully Modified OLS (FMOLS) and Dynamic OLS (DOLS), were applied to panel data from 33 provinces in Indonesia, 2010 to 2022. The descriptive-quantitative results show that regions with high levels of industrialization tend to produce high carbon emissions, and regions receiving special autonomy funds tend to have high vertical fiscal imbalance. The results of the FMOLS and DOLS estimates confirm that vertical fiscal imbalance has a significant negative impact on green economic growth, thereby weakening the effect of green capital on green economic growth, with coefficients of –0.0731 (FMOLS) and –0.0115 (DOLS). Conversely, based on the FMOLS results, green fiscal spending has a positive impact on green economic growth, strengthening the effect of green capital on green economic growth with a coefficient of 0.0331. Strengthening the fiscal capacity of local governments through increased own-source revenues and better collaboration between central and local governments to support sustainable green economic growth is needed.

Acknowledgments
We gratefully acknowledge the support of Universitas Syiah Kuala, which provided funding for this research (PRUUPD) under research contract number 453/UN11.2.1/PG.01.03/SPK/PTNBH/2024, dated May 3rd, 2024.