The effect of fiscal independence and expenditure efficiency on the financial performance of local governments

  • Jemmy Dedi Rengku 
    Fakultas Hukum, Universitas Sintuwu Maroso Poso
    Indonesia

Abstract

This study examines how fiscal independence and expenditure efficiency are associated with the financial performance of local governments and develops an integrative mechanism for interpreting their interaction. A structured integrative literature review was conducted using Google Scholar and OpenAlex for literature discovery, supplemented by backward citation chaining and verification of bibliographic metadata through DOI and publisher records. Search terms combined fiscal autonomy, fiscal independence, fiscal decentralization, local/subnational government, expenditure or spending efficiency, financial performance, financial condition, solvency, and sustainability. The analytic corpus comprises 40 peer-reviewed journal articles published between 1994 and 2026; foundational studies were retained when methodologically or theoretically essential, while recent studies were used to assess contemporary relevance. Eligibility required direct relevance to local or subnational government and at least one focal construct. Evidence was extracted into a standardized matrix and synthesized through descriptive mapping, thematic coding, conceptual comparison, and mechanism-based synthesis. The review indicates that fiscal independence is generally associated with greater fiscal flexibility and solvency, but its contribution depends on effective discretionary authority, revenue stability, governance quality, and transfer design. Expenditure efficiency is more directly related to financial performance because it determines how fiscal capacity is converted into service outputs and sustainable budget positions. The synthesis proposes the Integrative Model of Regional Financial Independence-Efficiency-Performance (MIKEK), in which expenditure efficiency functions as a transmission mechanism and institutional, economic, regulatory, demographic, and geographic conditions shape the relationship. The study contributes a transparent framework and identifies priorities for empirical testing in Indonesian local governments.

Keywords
  • Fiscal independence, Integrative literature review, Expenditure efficiency, Financial performance, Local government, Public sector accounting, Fiscal decentralization
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