Assessing the Role of Government Spending in Reducing Economic Disparities Across Urban and Rural Areas

Abstract

Government spending plays a pivotal role in addressing economic disparities between urban and rural areas, yet its effectiveness varies across sectors and regions. This study employs a qualitative methodology, utilizing literature review and library research, to assess how public expenditure allocation influences urban-rural inequality in Indonesia. The analysis synthesizes findings from academic studies, policy reports, and institutional data to evaluate the impact of spending on health, education, infrastructure, and social protection. Results indicate that health and education expenditures significantly reduce poverty in rural areas, where access to basic services is limited, while their effects in urban areas are less pronounced. Infrastructure investments, however, often exacerbate disparities due to uneven distribution favoring urban centers, perpetuating gaps in economic opportunities and resource access. Social protection programs show mixed outcomes, with insufficient targeting and governance challenges undermining their potential to alleviate inequality. The study also highlights the critical role of fiscal decentralization and governance quality, revealing that regions with stronger institutional frameworks achieve better outcomes in reducing disparities through localized spending strategies. Furthermore, financial mechanisms such as agricultural credit and banking efficiency disproportionately benefit urban populations, deepening rural-urban divides. The findings underscore the necessity for context-specific, equitable allocation strategies that prioritize rural infrastructure, enhance healthcare and education access, and strengthen governance transparency. By addressing systemic inefficiencies and aligning spending with regional needs, policymakers can optimize the redistributive impact of public funds. This research contributes to the discourse on fiscal policy design, advocating for integrated approaches to bridge economic gaps and promote inclusive growth.