Abstract :The concept of fiscal decentralization to align maintainable economic development with environmental sustainability is known as Ecological Fiscal Transfer (EFT), which has a small proportion of budget realization. It also requires better indicators and comprehensive formula to achieve sustainable development goals. Therefore, this study aims to determine the methods of modifying the EFT concept to be more amenable to local environmental issues. The main objectives of the study includes, (1) to analyze the EFT policies in Indonesia, (2) to reform EFT policy by modifying ecological performance indicators, and (3) to re-orient the financial instruments of the Regional Incentive and Specific Purpose Allocation Funds (DID and DAK), respectively. The results showed that EFT was adopted in the Indonesian budgeting development system, obviously in certain fiscal and other potential instruments. In addition, the study suggests that initiations from various stakeholders need to be continuously stimulated in obtaining a better fiscal-policy reform concept. Keywords : Ecological Function, Fiscal-Policy Reform, Regional Incentive Funds (DID), Specific Purpose Allocation Funds (DAK), Indonesia
