DETERMINANTS OF LOCAL TAX REVENUE AND ITS IMPLICATION TO LOCAL FINANCIAL INDEPENDENCE

Abstract

This research aimed to analyze the effect of government spending, inflation and population number in local tax revenues and the implications to local financial independence in 10 Districts of Nusa Tenggara Barat. This study was conducted in 10 Districts of Nusa Tenggara Barat province with four years pooled data (2012-2015). The method used is path analysis approach through Ordinary Least Square (OLS) regression. The results showed that at the mediation effect detection stage, government spending has positive and significant effect on local tax revenue, while population number does not significantly influence the local tax revenue, this insignificant results of population number led this variable to set aside in the second equation. The second equation obtained results that government spending and local tax are significant and positive impact on the local financial independence directly. Sobel test results proved that local taxes were able to mediate government spending and local financial independence significantly.