Increase fiscal decentralization

Oct 13, 2025 by talynt.org 92 views

The Effect of Fiscal Decentralization and Capital Expenditures on Regency/City Economic Growth in North Sumatra

Introduction

Fiscal decentralization and capital expenditure are two crucial elements that can significantly impact economic growth at the regional level. The decentralization of fiscal power allows local governments to manage their financial resources more effectively, while capital expenditure is essential for infrastructure development and the provision of public services. This study aims to analyze the extent to which these two factors affect economic growth in districts/cities in North Sumatra Province. By using quantitative methods and multiple regression analysis techniques, this study evaluates data from 25 districts/cities as samples during the period 2006 to 2010.

Research Methodology

In this study, fiscal decentralization and capital expenditure are independent variables, while economic growth is used as a dependent variable. This research was conducted by collecting data from 33 districts/cities in North Sumatra Province and purposive sampling to determine 25 districts/cities as samples. Before applying multiple regression, this study also conducted a classic assumption test to ensure the accuracy of the model used. The data collection process involved gathering information on fiscal decentralization, capital expenditure, and economic growth from various sources, including government reports, financial statements, and economic indicators.

Research Result

The results of the analysis showed that simultaneously, fiscal decentralization and capital expenditure had a significant influence on economic growth in districts/cities in North Sumatra Province. However, when analyzed partially, only fiscal decentralization shows a significant effect on economic growth. Conversely, capital expenditure does not show a significant effect on economic growth in the area. These findings suggest that fiscal decentralization is a more critical factor in promoting economic growth in North Sumatra, while capital expenditure may not be as effective in achieving this goal.

Analysis and Explanation

Fiscal decentralization is a process in which the central government provides more autonomy and authority to local governments to manage their financial resources. This allows local governments to design policies that are in accordance with local needs, which in turn can encourage economic growth. In the context of North Sumatra, an increase in fiscal autonomy allows local governments to be more responsive to the needs of the community and develop programs that support economic growth. For instance, local governments can allocate funds to support small and medium-sized enterprises (SMEs), which can create jobs and stimulate economic activity.

On the other hand, although capital expenditure is usually considered a key factor in infrastructure development and the provision of public services, the results of this study indicate that capital expenditure has no significant influence on economic growth in North Sumatra. This may be caused by several factors, including inefficiencies in the implementation of capital expenditure projects or lack of coordination between development programs and the real needs of the community. Therefore, the local government needs to conduct an in-depth evaluation of the allocation and use of the capital expenditure budget to be more effective in supporting economic growth.

The Role of Fiscal Decentralization in Promoting Economic Growth

Fiscal decentralization is a crucial factor in promoting economic growth in North Sumatra. By providing more autonomy and authority to local governments, fiscal decentralization allows them to design policies that are in accordance with local needs. This can lead to the development of programs that support economic growth, such as the allocation of funds to support SMEs. Additionally, fiscal decentralization can also lead to the creation of jobs and the stimulation of economic activity.

The Limitations of Capital Expenditure in Promoting Economic Growth

Although capital expenditure is usually considered a key factor in infrastructure development and the provision of public services, the results of this study indicate that capital expenditure has no significant influence on economic growth in North Sumatra. This may be caused by several factors, including inefficiencies in the implementation of capital expenditure projects or lack of coordination between development programs and the real needs of the community. Therefore, the local government needs to conduct an in-depth evaluation of the allocation and use of the capital expenditure budget to be more effective in supporting economic growth.

Conclusion

From the results of this study, it can be concluded that fiscal decentralization has an important role in encouraging regency/city economic growth in North Sumatra, while capital expenditure needs to be increased in order to have the same positive impact. A more planned policy and adapted to local needs must be implemented to support sustainable economic growth. Local governments must also increase managerial capacity and planning to ensure the use of a more efficient and effective budget.

Recommendations

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

Increase fiscal decentralization: The central government should increase fiscal decentralization to local governments, allowing them to design policies that are in accordance with local needs.
Improve capital expenditure management: The local government should conduct an in-depth evaluation of the allocation and use of the capital expenditure budget to be more effective in supporting economic growth.
Increase managerial capacity and planning: Local governments must increase managerial capacity and planning to ensure the use of a more efficient and effective budget.
Develop a more planned policy: A more planned policy and adapted to local needs must be implemented to support sustainable economic growth.

By understanding the effect of fiscal decentralization and capital expenditure, it is expected that stakeholders can formulate better policies and can increase economic growth in the regions.
Frequently Asked Questions (FAQs) on the Effect of Fiscal Decentralization and Capital Expenditures on Regency/City Economic Growth in North Sumatra

Q: What is fiscal decentralization, and how does it affect economic growth?

A: Fiscal decentralization is a process in which the central government provides more autonomy and authority to local governments to manage their financial resources. This allows local governments to design policies that are in accordance with local needs, which in turn can encourage economic growth. In the context of North Sumatra, an increase in fiscal autonomy allows local governments to be more responsive to the needs of the community and develop programs that support economic growth.

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

A: Capital expenditure is usually considered a key factor in infrastructure development and the provision of public services. However, the results of this study indicate that capital expenditure has no significant influence on economic growth in North Sumatra. This may be caused by several factors, including inefficiencies in the implementation of capital expenditure projects or lack of coordination between development programs and the real needs of the community.

Q: Why is fiscal decentralization more effective in promoting economic growth than capital expenditure?

A: Fiscal decentralization is more effective in promoting economic growth because it allows local governments to design policies that are in accordance with local needs. This can lead to the development of programs that support economic growth, such as the allocation of funds to support small and medium-sized enterprises (SMEs). Additionally, fiscal decentralization can also lead to the creation of jobs and the stimulation of economic activity.

Q: What are the limitations of capital expenditure in promoting economic growth?

A: The limitations of capital expenditure in promoting economic growth include inefficiencies in the implementation of capital expenditure projects and lack of coordination between development programs and the real needs of the community. Therefore, the local government needs to conduct an in-depth evaluation of the allocation and use of the capital expenditure budget to be more effective in supporting economic growth.

Q: How can local governments increase their managerial capacity and planning to ensure the use of a more efficient and effective budget?

A: Local governments can increase their managerial capacity and planning by:

Conducting regular evaluations of their budget allocation and use
Developing a more planned policy and adapted to local needs
Increasing their capacity to collect and analyze data on economic growth and development
Strengthening their partnerships with other stakeholders, such as private sector companies and civil society organizations

Q: What are the implications of this study for policymakers and stakeholders?

A: The findings of this study have important implications for policymakers and stakeholders. They suggest that fiscal decentralization is a more effective way to promote economic growth in North Sumatra than capital expenditure. Therefore, policymakers and stakeholders should prioritize fiscal decentralization and develop policies that support local governments in their efforts to promote economic growth.

Q: What are the future research directions for this study?

A: Future research directions for this study include:

Conducting a more in-depth analysis of the relationship between fiscal decentralization and economic growth
Examining the impact of capital expenditure on economic growth in other regions
Developing a more comprehensive framework for understanding the factors that influence economic growth in North Sumatra

By understanding the effect of fiscal decentralization and capital expenditure, it is expected that stakeholders can formulate better policies and can increase economic growth in the regions.