| Summary: | The objectives of this study are to identify what kind of factors would lead the prosperity of a region and to know the role of government in resolving the income inequality in 38 districts and/or city in East Java Province, Indonesia. The research approach uses a quantitative approach with the model of treatment effect. In this method, the prosperity of a region measured through the GRDP per capita is a variable used to determine the model of treatment effect on income inequality, where 1 is for a prosperous region and 0 is for a less prosperous region. The results of this study indicate that the budget ratio has a significant effect and tends to lead to less prosperous region while the Human Development Index (HDI) has a significant effect and tends to lead to prosperous region. Variable ratio of road conditions, investment sharing, and industry sharing has no significant effect on the prosperity of a region. Furthermore, the ratio of health budget has a significant and positive effect on income inequality, while the ratio of education and infrastructure budget has no significant effect on income inequality.
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