One of the factors impeding the decline in poverty in Indonesia is the government’s lack of attention to the need to reduce income inequality. Fiscal policy and economic growth can effectively reduce poverty by lowering income inequality, so the inequality channel must be considered. Socioeconomic and infrastructure differences between provinces can influence the effectiveness of economic growth and fiscal policy in reducing poverty. This study aimed to assess the effects of economic growth and fiscal policy regarding spending and taxes on direct and indirect poverty reduction through lowering income inequality, as well as considering how these variables influence poverty by province. This study employed secondary data, including panel data for 2010–2023 from 34 provinces in Indonesia, which were analyzed using autoregressive cross-lagged SEM. This study found that economic growth and fiscal policy regarding spending on education and health are statistically significant in directly reducing poverty in regions outside Java but do not affect it through income inequality. Taxes increase income inequality, and the social safety net does not reduce poverty outside Java. The increased spending on education and health should continue, but improvements are needed in terms of targeting social safety nets and tax reforms to strengthen the system and reduce inequality.

The issues of poverty and inequality are critical challenges in Indonesia, highlighted by a persistently high poverty rate and elevated Gini coefficient in recent years. These factors threaten the achievement of sustainable development goals. Fiscal policy, particularly through education and health expenditures and taxation, plays a crucial role in addressing these issues. This study investigates the effects of fiscal policy on poverty reduction and income inequality using secondary panel data from 2010 to 2023 across 34 provinces in Indonesia. The analysis employs multiple regression techniques to assess the impact of government spending on education and health, social protection, tax revenue, economic growth, and investment as control variables. Findings reveal that education and health expenditures significantly reduce poverty, while social protection spending appears to exacerbate it. Furthermore, the study indicates that tax policies contribute to rising income inequality and do not effectively alleviate poverty. These results suggest that local governments should prioritize increasing allocations for education and health programs aimed at impoverished communities and enhance the quality of expenditure implementation. Additionally, social protection measures require better targeting, and improvements in the tax redistribution mechanism are essential for promoting equitable income distribution. This research underscores the need for a more effective fiscal strategy to combat poverty and inequality in Indonesia.

One of the factors leading to the slow decline in poverty in Indonesia is the lack of government at-tention to reduce income inequality. Fiscal policy and economic growth can effectively reduce poverty after lowering income inequality, so the inequality channel must be considered. Socioec-onomic and infrastructure differences between provinces can influence the effectiveness of eco-nomic growth and fiscal policy in reducing poverty. This study aims to assess the effects of eco-nomic growth and fiscal policy on spending and taxes on direct and indirect poverty reduction through lowering income inequality and how these variables influence poverty by province. This study employed secondary data, including panel data for 2010-2023 from 34 provinces in Indo-nesia, which were analyzed using an autoregressive cross-lagged SEM model. The study finds that economic growth and fiscal policy on spending on education and health are statistically sig-nificant in reducing poverty directly in non-Java but do not affect it through income inequality. Taxes increase income inequality, and the social safety net does not reduce poverty outside Java. Increased spending on education and health should continue, with improvements in targeting so-cial safety nets and tax reforms needed to make the system more progressive and reduce inequality