Capital Expenditure of Local Governments

Yeni Kuntari, Anis Chariri, Tr

Abstract

Resource allocation is a fundamental issue for public sector budgeting especially revenue and expenditure budgeting because of the resources limitation. Regional budget allocation shows local government policies on development funding whereas capital expenditure is concerned with a component of direct expenditure of government budgets that produce output in the form of fixed asset. This study aims to determine factors that influence capital expenditure of local governments. These factors are locally-generated revenue, general allocation funds, special allocation funds, and revenue sharing fund of local governments. The population of this study are 35 local goverments in the Province of Central Java, Indonesia. Using secondary data from the 2014-2016 Budget Realization Reports of local governments in the Province and employing multiple regression analysis, the findings indicate that locally-generated revenue, general allocation fund, special allocation fund, and revenue sharing fund positively affect capital expenditure. These findings imply that local governments should look more carefully at the proportion of general allocation fund allocated to capital expenditure in order to increase economic growth.