The paper discusses about the initialization of modern industry when interregional income bias exists. The simple model is introduced, assuming two regions in Indonesia that are industry region  (Jakarta, Region-1), and natural rich region (East Kalimantan, Region-2). The model contains of three sectors (industry, natural resource, and traditional sectors), and assuming Cobb-Douglass production function for Public Services, Private Capital, Skilled and Un-skilled Labors.

The initialization of modern industry sector in region-2 will be analyzed based on the basic structure that interregional income bias exists as the effect of income transferred back mechanism to the industry region. The demand of industry goods will be examined, and education activities will be introduced to take a role in a structural change.  The central government has the power to collect most revenue and tactically manage the expenditure for her proper function, and for fiscal transferred, included the expenditure for general welfare function and for those related to the education success factors.

Current fiscal policies will be measured, and compared with different alternatives of expenditure distribution to maximize national welfare, which is defined based certain criteria. The comparison with the actual distribution will clarify the effect, and urge an adequate correction to improve social development.