Objective - This study attempts to provide comprehensive findings on the impact of several kinds of infrastructural developments and government budgets on specific purposes, as well as agricultural and non-agricultural productions, on poverty alleviation in Indonesia between 2002-2013.

Methodology/Technique - This study uses macroeconomic data at a municipal level to provide more precise findings when comparing provincial and national level data. The study uses an adaptation of the theory of international development.

Findings - This research shows that electricity and sanitation are more effective at eradicating poverty than water infrastructure. In addition, household access to infrastructure is more effective in combatting poverty than the government budget for infrastructure development. The study also performs correlation matrices, dividing the data into the western and eastern parts of Indonesia, to provide more robust findings. Agricultural production is more effective in the western part of Indonesia, yet non-agricultural production is more relevant towards poverty reduction in the eastern part of Indonesia.

Novelty - This study yields some empirical results and conclusions for economic development in Indonesia, finding that the key problem lies in the effectiveness of budget arrangement within the framework of fiscal decentralization.

Type of Paper: Empirical.

Keywords: Infrastructure Development; Fiscal Decentralization; Government Expenditure; Poverty Rate; Poverty Reduction.

JEL Classification: H54, P30, P36.