<![CDATA[Decentralization theory states that the higher degree of centralization will increase local economic growth, because local government will create public sector efficiently, so it will increase more local economic growth than central government. The implementation of Decentralization Law No. 23 & 33, 2004, and the balance of finance between the central and local government as the manifestation of the theory is expected to increase affectivity and efficiency of local government performance through the delegation process from the central government to the local government. This research was conducted to evaluate 5 years of fiscal decentralization of 29 districts and 9 cities in East Java with fixed effect model (fem) analysis. The result of this research are: (a) decentralization of expenditure has significant positive impact on economic growth, (b) decentralization of expenditure has significant positive impact on inefficiency of public expenditure, and (c) inefficiency of public expenditure has significant negative impact on economic growth.Keywords: decentralization of expenditure, inefficiency of public expenditure, economic growth]]>
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