The Path to Poverty Reduction: How Economic Growth and Fiscal Policy Influence Poverty through 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