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Abstract

This paper discusses the analysis of local government financial capacity for equitable development in its territory. Autonomy requires local governments to improve their abilities in various matters, such as organizational, financial, and political. Financial capacity is the key to achieving local government performance. Limited financial capacity results in an imbalance in the distribution of development. Budget allocations meet complicated conditions to maintain equitable development in all territories. The local government within the Indonesian archipelago faces great challenges to minimize regional disparities. “Success to the successful” (Kim & Anderson, 1998) is an archetype that illustrates this reality. Local government budgets behave in trade-offs, between the mainland and the islands area negating each other in their allocations. Affirmations in one area result in weaker allocations in other areas. The dilemma is that local governments are committed to eliminating regional disparities but are not supported by adequate financial capacity. Low financial capacity causes a monopolistic pattern. If an entity leads, then the entity will be easier to continue to lead and improve its performance, while other entities remain underdeveloped.

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