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One of the main challenges faced by local governments in developing countries is to allocate scarce resources effectively to achieve the community’s highest priorities. This challenge relates to government’s effort to reduce regional inequality. This paper examined the relationship between priority-based budgeting policy and local growth imbalance by using economic structure transformation as the intervening variable. The researchers employed multivariate regression and path-analysis to examine the relationship. The results revealed that the priority-based budgeting affected local inequality significantly through structural transformation. It explicitly demonstrates that the prioritized government allocation in education, health, and education plays an important role to strengthen economic transformation leading to reduce regional divergence.

Priority-Driven Budgeting Policy and Regional Inequality: Does Economic Structure Transformation Really Perform as Intervening Variable?