Effect Of Economic Growth, Regional Original Revenue (PAD), And General Allocation Funds (DAU) On The Allocation Of Capital Expenditures Budget In Regency/City Government In North Sumatra Province

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The Impact of Economic Growth, Regional Original Revenue (PAD), and General Allocation Funds (DAU) on Capital Expenditure Budget Allocation in Regency/City Governments in North Sumatra Province

Introduction

In the context of regional development, the allocation of capital expenditure budget is a crucial aspect that requires careful consideration. The allocation of capital expenditure budget is essential for improving infrastructure and public services in regions. This study aims to analyze the effect of economic growth, Regional Original Revenue (PAD), and General Allocation Funds (DAU) on the allocation of capital expenditure budget in the Regency/City in North Sumatra Province. The study uses a causal research design with a sample of 11 regencies/cities taken from 29 districts/cities in North Sumatra Province, covering the period 2004 to 2006.

The Role of Regional Original Revenue (PAD) in Capital Expenditure Budget Allocation

Regional Original Revenue (PAD) is the main source of funding for development projects that can improve infrastructure and public services in regions. The analysis results show that PAD has a positive and significant influence on capital expenditure. That is, the higher the original revenue obtained by the region, the greater the budget allocation for capital expenditure. This indicates that PAD is the main driver in the allocation of the capital expenditure budget. Therefore, regional autonomy in managing local income sources must be strengthened so that regions can invest in better public infrastructure and services.

The Impact of Economic Growth on Capital Expenditure Budget Allocation

Although economic growth plays a role in the allocation of capital expenditure, the results of this study indicate that it does not significantly influence individually. This indicates that despite good economic growth, it does not always guarantee the budget allocation for greater capital expenditure. However, this study found that economic growth, PAD, and DAU have a significant positive impact on the allocation of capital expenditure when considered simultaneously. This confirms the importance of integration between regional income and support from the central government in maximizing capital expenditure for sustainable regional development.

The Role of General Allocation Funds (DAU) in Capital Expenditure Budget Allocation

Although DAU does not show an individual significant effect, its role is still important as a guarantee in supporting regional finances, especially for districts/cities that have limited local income potential. Therefore, the synergy between PAD and DAU must be managed wisely so that the allocation of capital expenditure can be more optimal. DAU can be used as a guarantee in supporting regional finances, especially for districts/cities that have limited local income potential.

Conclusion

This study can provide insight for policymakers, researchers, and academics about the importance of paying attention to regional income sources in budget planning. It is hoped that the results of this study can encourage efforts to increase regional capacity in managing the budget and maximizing the potential of PAD to achieve better development goals in North Sumatra Province. The study highlights the importance of integration between regional income and support from the central government in maximizing capital expenditure for sustainable regional development.

Recommendations

Based on the findings of this study, the following recommendations are made:

  1. Strengthen regional autonomy in managing local income sources: Regional autonomy in managing local income sources must be strengthened so that regions can invest in better public infrastructure and services.
  2. Manage the synergy between PAD and DAU wisely: The synergy between PAD and DAU must be managed wisely so that the allocation of capital expenditure can be more optimal.
  3. Increase regional capacity in managing the budget: Efforts should be made to increase regional capacity in managing the budget and maximizing the potential of PAD to achieve better development goals in North Sumatra Province.

Limitations of the Study

This study has several limitations that should be noted. Firstly, the study only focuses on the Regency/City in North Sumatra Province, and the results may not be generalizable to other regions. Secondly, the study only uses secondary data obtained from the website of the Ministry of Finance of the Republic of Indonesia, which may not be comprehensive or up-to-date. Finally, the study only analyzes the effect of economic growth, PAD, and DAU on capital expenditure budget allocation, and does not consider other factors that may influence the allocation of capital expenditure.

Future Research Directions

Future research should aim to overcome the limitations of this study by:

  1. Conducting a more comprehensive analysis: Future research should conduct a more comprehensive analysis of the factors that influence capital expenditure budget allocation, including other regional income sources and support from the central government.
  2. Using more comprehensive and up-to-date data: Future research should use more comprehensive and up-to-date data to analyze the effect of economic growth, PAD, and DAU on capital expenditure budget allocation.
  3. Generalizing the results to other regions: Future research should aim to generalize the results of this study to other regions, including other provinces and districts/cities in Indonesia.

Conclusion

In conclusion, this study highlights the importance of integration between regional income and support from the central government in maximizing capital expenditure for sustainable regional development. The study shows that PAD is the main driver in the allocation of the capital expenditure budget, and that DAU plays an important role in supporting regional finances. The study also highlights the importance of managing the synergy between PAD and DAU wisely to achieve better development goals in North Sumatra Province.
Frequently Asked Questions (FAQs) about the Effect of Economic Growth, Regional Original Revenue (PAD), and General Allocation Funds (DAU) on Capital Expenditure Budget Allocation in Regency/City Governments in North Sumatra Province

Q: What is the main source of funding for development projects in regions?

A: The main source of funding for development projects in regions is Regional Original Revenue (PAD). PAD is the main driver in the allocation of the capital expenditure budget.

Q: What is the role of economic growth in capital expenditure budget allocation?

A: Economic growth plays a role in the allocation of capital expenditure, but it does not significantly influence individually. However, when considered simultaneously with PAD and DAU, economic growth has a significant positive impact on the allocation of capital expenditure.

Q: What is the role of General Allocation Funds (DAU) in capital expenditure budget allocation?

A: DAU plays an important role in supporting regional finances, especially for districts/cities that have limited local income potential. Although DAU does not show an individual significant effect, its role is still important as a guarantee in supporting regional finances.

Q: How can the synergy between PAD and DAU be managed wisely?

A: The synergy between PAD and DAU must be managed wisely so that the allocation of capital expenditure can be more optimal. This can be achieved by strengthening regional autonomy in managing local income sources and using DAU as a guarantee in supporting regional finances.

Q: What are the implications of this study for policymakers, researchers, and academics?

A: This study can provide insight for policymakers, researchers, and academics about the importance of paying attention to regional income sources in budget planning. It is hoped that the results of this study can encourage efforts to increase regional capacity in managing the budget and maximizing the potential of PAD to achieve better development goals in North Sumatra Province.

Q: What are the limitations of this study?

A: This study has several limitations that should be noted. Firstly, the study only focuses on the Regency/City in North Sumatra Province, and the results may not be generalizable to other regions. Secondly, the study only uses secondary data obtained from the website of the Ministry of Finance of the Republic of Indonesia, which may not be comprehensive or up-to-date. Finally, the study only analyzes the effect of economic growth, PAD, and DAU on capital expenditure budget allocation, and does not consider other factors that may influence the allocation of capital expenditure.

Q: What are the future research directions?

A: Future research should aim to overcome the limitations of this study by:

  1. Conducting a more comprehensive analysis of the factors that influence capital expenditure budget allocation, including other regional income sources and support from the central government.
  2. Using more comprehensive and up-to-date data to analyze the effect of economic growth, PAD, and DAU on capital expenditure budget allocation.
  3. Generalizing the results of this study to other regions, including other provinces and districts/cities in Indonesia.

Q: What are the recommendations of this study?

A: Based on the findings of this study, the following recommendations are made:

  1. Strengthen regional autonomy in managing local income sources.
  2. Manage the synergy between PAD and DAU wisely.
  3. Increase regional capacity in managing the budget and maximizing the potential of PAD to achieve better development goals in North Sumatra Province.

Q: What are the implications of this study for regional development in North Sumatra Province?

A: This study highlights the importance of integration between regional income and support from the central government in maximizing capital expenditure for sustainable regional development. The study shows that PAD is the main driver in the allocation of the capital expenditure budget, and that DAU plays an important role in supporting regional finances. The study also highlights the importance of managing the synergy between PAD and DAU wisely to achieve better development goals in North Sumatra Province.