Determination of regional expenditures : A case study of Sumatera Island Provinces

Abstract

This research aims to analyze the effects of local revenue, equalization funds, regional financing, degree of fiscal decentralization, and routine capability index on regional expenditures in Sumatra Island provinces. The study sample consists of 10 Provinces from 2012 to 2021. The data used in this research is annual data from 10 Provinces over nine years, totaling 100 observations. The data analysis method used is Panel Data Regression Analysis with a Fixed Effect Model (FEM) estimation model. The estimation results show that Local Revenue and Regional Financing positively and significantly affect Regional Expenditures. It indicates that the increase in local revenue and regional financing can cause an increase in regional expenditures. These results are consistent with the hypothesis expectations, where local revenue and regional financing positively affect regional expenditure. However, the effect of equalization funds, degree of fiscal decentralization, and routine capability index have different results, in which they have a negative and significant effect at the one percent significance level on regional expenditures. These results contradict the hypothesis expectations that an increase in equalization funds, degree of fiscal decentralization, and routine capability index can reduce regional expenditure. Overall, this research proves that local revenue significantly affects increasing regional expenditure.