Causal Interaction Between Regional Financial Performance and Provincial-Level SDGs Achievement in Indonesia

This study examines the reciprocal causal relationship between regional financial performance and the achievement of the Sustainable Development Goals (SDGs) at the provincial level in Indonesia. Using panel data from 34 provinces over the period 2019–2023, the study combines SDG indicators from Statistics Indonesia with provincial fiscal data from the Regional Financial Information System. Structural Equation Modeling (SEM) is employed to analyze bidirectional effects while addressing measurement errors. The results reveal a positive and statistically significant two-way relationship between regional financial performance and SDGs achievement. The effect of financial performance on SDGs achievement is stronger than the reverse relationship, highlighting the importance of fiscal capacity in accelerating sustainable development. Expenditure efficiency and fiscal decentralization are identified as the main drivers of regional financial performance, while partnerships for the goals (SDG 17) contribute most significantly to SDGs achievement. This study provides empirical evidence of a dynamic fiscal–sustainability feedback mechanism at the subnational level. Policy implications suggest that investment in SDGs serves as a long-term fiscal strategy that strengthens regional financial sustainability.