<![CDATA[As an asymmetric decentralization instrument, special autonomy fund has a crucial contribution to achieve the development goals as well as being written at Law 21/2001 about Papua Special Autonomy. However, its application was not optimized enough in due to misallocation of local expenditures suited to constitutional requirements which affected to inequality of local development’s level. Although the level of development is expected to influence the local tax capacity improvement as a representative of independent and sustain funding resources. This study aims to investigate the impact of special autonomy fund to tax capacity at 40 of 42 municipalities in Papua and West Papua Province from 2010 until 2019. Using balanced panel assumption and two-stage least square (2SLS) method which expected the endogeneity on level of development variable that can be mentioned as one of taxable capacity, the result showed that there was not a simultaneity problem with any evidence said special autonomy fund effected indirectly to tax capacity. Instead, its fund had an incentive on increasing per capita income. Yet, the improvement of per capita income cannot affect the local tax capacity significantly. Several policy recommendations that can be given with this study are adjustment process in local government expenditure allocation which suited with current constitutional documents, optimization in productive sectors, also tightening and re-evaluating from the planning process until supervising and responsibility process in revenue, expenditure, administration, and institutional sides.]]>
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