Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

DETERMINANT OF LOCAL EXPENDITURE QUALITY MODEL AND RELATION WITH LOCAL DEVELOPMENT IN EAST

Yufita Listiana, Bambang Juanda, Sri Mulatsih Graduate School of Rural Planning and Development Bogor Agricultural University Jl. Kamper Wing 2 Lv 5 Kampus IPB Dramaga Bogor 1660 Corresponding E-mail: [email protected] Recieved: July 2016; Accepted: December 2016

Abstract

This research aim is to analyze local expenditure quality in based on five construct variables. Each construct variables consist of 40 indicators. This research use secondary data is Local Government Management Evaluation Report each region in East Java. Data of local development use poverty, unemployment, Gini index, economic growth, GDP per capita, and Human Development Index. This research uses analysis Structural Equation Modeling. It uses to know appropriate indicators to improve spending quality. The result shows that from 40 indicators just there are 21 indicators which have reached criteria good expenditure quality. Effectively has influence to expenditure quality more than 50% to describe model variation in local expenditure quality. It means that East Java has high financial effectively in increase public service because quality expenditure increasing continuously each year. Keywords: Expenditure Quality, Local Development, Accountability, Transparency, Structural Equation Modelling JEL Classification: H54, H72, H75, O21 1. Introduction has been established that fiscal decentralization Development is a systematic effort and is based on the consideration that region is more sustainable for create a condition that can aware of the needs and standards public service provide a variety of alternatives for achieving the in the region. Each region is given authority and aspirations of every citizen (Rustiadi et al, 2011). obligation to arrange the local budget (APBD). Todaro (2006) explain that the development is Local budget can maximize their local revenue seen as a multidimensional process that covers a of existing potential, then spend those funds wide range of fundamental changes on the social according the program and needs of the region structure, the attitude of society and national has been set. institutions that pursue the acceleration of Minister Regulation No. 13 of 2006 also economic growth, overcome income inequality, and have determined structure of expenditure consist overcome poverty. Along with the implementation of indirect and direct expenditures. Indirect of regional autonomy and the change paradigms expenditure is budgeted expenditure not directly underlying development to the society, regional related to the implementation of programs and development requires a participatory approach, activities that include: personnel expenditure, involving all of elements of society in the region. interest expenditure, subsidy, grant expenditures, Implementation of regional autonomy, it social aid, profit sharing expenditure, financial means the region is given authority to manage aid, and unexpected expenditures.While direct the potential of the region in developing the expenditure is budgeted expenditure directly potential its resources. Regional autonomy policy related to the implementation of programs and 176 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 activities that include: personnel expenditure, indicators of which should pay attention to local spending of goods and services, as well as priorities, budget allocation accuracy, timeliness, capital expenditures.In general, the problems efficient, accountability and transparency. Based encountered in local expenditure is the dominance on data local budget in East Java in 2008 to 2012 of indirect expenditure compared local revenue knows that local budget progress in East Java and cause of increasing local transfer. Allocation in 2008 to 2012 has increased. In 2010 and 2012 of local transfer consist of share profit fund, local expenditure greater than total revenue. General Allocation Grant (DAU), and Special Local expenditure were initially Rp 6.639.781 Allocation Fund (DAK). If it occure countinously in 2008 to Rp 12.214.783 in 2012 means that so increase local expenditure greater than local local expenditure each year is always increasing. revenue which region will have deficit and impact Besides that the growth of local revenue is much to quality of the fulfillment of the right to public slower than the needs of the public service budget. services not yet optimal. Budgeting funds received as local income allocated Local budget especially local expenditure to in the region in the form of direct expenditure and this day increase countinously will have an impact indirect expenditure. on quality of public services and encourage the Quality expenditure as expenditure government activities and the private sector in the allocated by regional development priorities doing region. Expenditure less than optimal will have efficiently and effectively, timely, transparant and impact in low quality of public services and the accountable. Juanda et al (2013) explains that five declining performance local development. Based indicators have related. Quality expenditure will on data local budget of 2014, knows that every year certainly put a priority to be implemented with local budget and expenditure from 2009 to 2013 discipline. High Discipline on our priorities will has increased. In 2009 the revenue of Rp 367.268 determine the accuracy of the budget allocation billion up to Rp 652.865 billion in 2013. So local as shown by the indicator of capital expenditure, expenditure increased from the year 2009 amount the allocation of subsidies, grants and social aid Rp 415.232 billion to Rp 707.083 billion in 2013. and personnel expenditure. The next priority In terms of the revenue side and the expenditure expenditures that have been determined well then incurred throughout provinces in Indonesia from budgeted is not timely, then the result is not good. 2009 to 2013 is always running a budget deficit. So, timely variable is something no less important In the local budget, to cover the budget deficit in a quality expenditure. Quality expenditure can be sourced from the remaining balance in the can understood with fulfill of concept economic, previous year’s budget, disbursement of reserves, efficient and effective. Besides that, government sale of the wealth of separated region, and loan. expenditure managed to be transparent and Occurrence of budget deficit continously going to accountable for the economic, efficiency and have an impact on infrastructure expenditure effectiveness of public expenditure has done. savings. Infrastructure expenditure increasingly Based on the decision of the Ministry of little will also impact on the state of quality local Internal Affairs in 2014 about the performance of expenditure decreases. local government processes, East Java has a score East Java Province is one of provinces in 3,0519 and known to have the title quite well in Indonesia which has 38 District/City. Since 2009 comparison with other provinces in Indonesia. until 2013, East Java Province has local budget However, if it is associated with the performance that is increasing every year, especially on the of the local development one of which can be seen portion of local expenditure. This relates to from the economic growth it can be proved that research Juanda et al (2013) which explains that there are still some districts/cities in East Java the quality of local expenditure depends on several that has economic growth below the national

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 177 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 growth. This proves that the region has a high research selected data use time series in 200- predicate does not guarantee that region has 2012. a good development performance anyway. So, Model of quality expenditure can not be need for this research related to the performance measured directly because it is still a latent evaluation of local government processes such variable. Therefore, Juanda et al (2013) explain as through expenditure quality desired region. that priority variable quality expenditure can Measurement of quality local expenditure need use discipline indicators to program priority local special model because it has abstract concept or government. Accuracy of expenditure allocation can not direct measurement. Beside that quality use capital expenditure indicator, allocation local expenditure can seen from local development of subsidy grants and social aid, allocation of include of several indicators like economy growth, personnel expenditure. Timeliness variable gini index, poverty, unemployment, GDP of per includes three indicators, such us establishment capita, human development index. of local budget timely, expenditure timely, 2. Methods revenue timely. Accountability variable have Data used in this research is secondary data. an indicator BPK opinion on financial report, Sources of data this research were obtained from accountable and accessible of public. While Ministry of Internal Affairs namely Directorate effectiveness and efficiency variable expenditure General of Regional Autonomy is evaluation data consist of economic/efficiency and effectiveness. Management Local Government (EPPD) of each Heriwibowo et al (2016) shows that expenditure districts/cities in East Java, Directorate General quality indicators in the construct of 40 indicators, Financial Balance, State Audit Agency (BPK), each of which has been determined based on data Central Bureau of Statistic (BPS). Therefore, this evaluation of local government management.

Table 1. Indicators of Quality Expenditure Code Atribut Indicators

Suitability development priorities (A1) Implementation of Minimum Service Standards(A2) Synchronization priority in the work planning work units (A3) Priority A Synchronization priority in the work planning and budget of the regional (priority) work units (A4) Implementation of the priorities in the implementation budget document (A5)

Proportion of expenditure personnel allocation (B1) Proportion of goods and service allocation (B2) Proportion capital expenditure allocation (B3) Allocation of Proportion subsidy, grants and social aid allocation (B4) B expenditure Expenditure allocation function of education (B5) (allocation) Expenditure allocation function health (B6) Expenditure allocations function of pubuc work and housing (B7) Expenditure allocation function of economics (B8)

Timely enactment of regulations budgets (C1) Timely submission of financial report (C2) Timeliness C Timely of local government management report (C3) (Time) The existence of legislation on public service standards (C4) The existence of the Standard Operations Procedure (SOP) (C5)

178 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Code Atribut Indicators

The availability of information media budgeting (D1) Transparency Opinion Audit Agency to local financial report (D2 and D Ratio of follow up the findings of BPK (D3) accountability Availability of electronic procurement system (D4) (accountability) The existence of society satisfaction survey (D5)

Performance education affairs (E1) Performance of health affairs (E2) Performance of public work affairs (E3) Performance environmental affairs (E4) Performance development planning affairs (E5) Effectivity E Poverty (E6) Poverty t+1 (E6a) (effectivity) Unemployment (E7) Unemployment t+1 (E7a) Gini Index (E8) Gini Index t+1 (E8a) Economic growth (E9) Economic growth t+1 (E9a) GDP per capita (E10) GDP per capita t+1 (E10a) Human Development Index (E11) HDI t+1 (E11a)

Source: Heriwibowo et al (2016)

The method of analysis using the analysis (reflective measuremenet model) and formative Partial Least Squares of Structural Equation measurement model (formative measurement Modeling (SEM) to determine the quality local model) (Hair et al., 2011). This research was expenditure of each indicator and constructs that calculated using SEM-PLS softwere like have been set. This analysis is a combination of the SmartPLS. From these calculations will produce two methodologies disciplines that econometric a loading factor of each construct. PLS-SEM path perspective that focuses on predictions and modeling using SmartPLS is appropriate to carry psychometrika were able to describe the concept on the confirmatory factor analysis which is more of a model with latent variables (variables that reliable and valid (Asyraf, 2013). can not be measured directly), but measured by Further evaluation models of the evaluation the indicators (Ghozali et al, 2015). SEM-PLS of measurement model and evaluation of the is similar to the regeresion analysis ordinay structural model (Hair et al., 2011). PLS-SEM least squares (OLS) because it has the purpose analysis usually consists of two sub-models of of maximizing the variance of the dependent the measurement model (measurement model) variable that can be explained in the model. Or in or often called the outer model and the structural other words, to maximize the value of R-squared model (structural model) or commonly called inner and minimize residual or errors. Another aims of models. The model shows that how presented the the SEM-PLS is evaluate the quality of the data manifest variables or latent variables observed based on the measurement model. Therefore, variables to be measured. While the structural SEM-PLS can be viewed as a combination model shows the estimated force between the of regression and factor analysis. SEM-PLS latent variables or constructs. Here are pictures can handle reflective measurement models of models from this research:

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 179 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Figure 1 Model of Quality Local Expenditure

Evaluation of the measurement model to the construct with the score indicator), while evaluate the validity and reliability especially the discriminant validity can be measured by formative or reflective indicators were used. This cross loading (correlation between the latent research using a reflective indicator because it variables). Discriminant validity assesses is a manifestation or reflection from the model whether a construct share more variance with its constructs. Therefore, wasting one reflective measure than with other construct (Sholihin et al, indicator is not a problem and does not change the 2011). For the measurement reliability model can essence of the construct, it because there are other be seen through reliable indicators and internal indicators that have the same characteristics. In consistency reliable by calculating Cronbach’s this phase the criteria of validity, reliability and alpha and Composite Reliable. After an evaluation goodness of fit must be fulfilled. In a measurement model that calculates the validity of these model, if you want to see the value of T-statistic of indicators can be seen from the construct validity each indicator can perform bootstrapping. It was and discriminant validity. done to determine the value of the T-statistic of Construct validity can be measured through inner models. Here the related table evaluation a loading factor (correlation between score of model in SEM-PLS.

Table 2 Evaluation Measurement Reliabilty and Validity Model Evaluation Model Measurement Model Description Reliability Square each of the outer loadings to find the indicator reliability Indicator reliability Outer Loadings value ≥ 0,7. If it is an exploratory research, ≥ 0,4 is acceptable. (Hulland, 1999)

180 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Evaluation Model Measurement Model Description Composite reliability ≥ 0,7 , if it is Internal Consistency an exploratory research composite Reliability numbers Reliability reliability ≥ 0,6 (Bagozzi dan Yi, 1988) Validity AVE numbers should be ≥0,5 Convergent validity AVE numbers (Bagozzi dan Yi, 1988) Fornell and Larcker (1981) suggest that the square root AVE numbers and Latent of AVE of each latent variable Discriminant validity Variable Correlations should be greater than the correlations among the latent variables. Source: Kay Wong et al (2013)

3. Result and Discussion conditions in East Java are still some regions East Java is the province of the referenced that have high levels of economic growth below economy after Jakarta and West Java Province. the average national economy growth. East Java is the second largest contributor Expenditure quality has 40 indicators used development in national economy after Jakarta to evaluate the performance of development with contributions amount 14.40% in 2014. especially in the field of expenditure based East Java Province has a strategic position in Priority, Time Allocation, timeliness, the industry because it location between Central accountability and effectiveness constructs Java and Bali. Based on the statistics area of ​ suitable with the conceptual framework of East Java province in 2015, economic growth measuring the quality of expenditure (Juanda amount 6.31% increasing in 2012 amount to et al, 2013). Based on construct variables can 6.64%. However, the next year in 2013 and be explained that what variables are more 2014 economic growth in East Java slowed dominant in East Java province in terms of down by 6.08% and 5.86%. East Java is known supporting expenditure quality. This research as region that has a population density is quite uses techniques Partial Least Square (PLS) with high and are second after West Java. Besides SmartPLS softwere version 2.0. Measurement that, East Java is a region that has a number model in PLS model consists of two measuring of District/City is good too much in the other devices that construct validity and test realibility. province. Therefore, the characteristics of each Construct validity is composed of region is very different to make a self-sufficient convergent validity and discriminant validity. region and not too dependent on the central Convergent validity can measure by a factor region. Importance of a difference to know loading indicators (correlation between the what are region able to survive in improving the values of the indicator to construct a variable economy and improve the welfare of society can value) to the value of the construct. This be seen in the economy growth. Beside that, research there were 5 construct variables East Java is one of include region has highest each of these variables does not equal the financial performance among other provinces number of indicators. Based on the results of in Indonesia based on the decision Ministry the measurement model, constructs should be of Internal Affairs in 2014. However, the real a validity test (loading factor > 0.4). Loading

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 181 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 factors are used to determine the appropriate and construct can be view by coefficients that indicators that can meet the established criteria. match the criteria as shown in Figure 2. The results of the correlation between indicators

Figure 2 First Structural Model of Expenditure Quality East Java Source: Processed data from Output SmartPLS 2.0

Based on Figure 2 that are 40 indicators effect on the expenditure quality. Therefore, data will be obtained indicators have reached the of expenditure quality has done moderating effect. convergent validity criteria based on factors Moderating variables are variables loading. Hair et al (2011) explain that for loading that have a high dependency correlation factors that not fulfill the criteria should be with dependent variable (endogenous) eliminated because it can increase the value of and independent variables (exogenous). the loading factor and construct reliability (CR) Moderating variables are used with the intent to in a model. The results obtained in model after influence or change the first correlation between the elimination of a number of indicators can be the independent variables (exogenous) and the found 21 valid indicators. However, the result dependent variable (endogenous). In this research, is correlation between the path coefficients has the moderating variables are latent variables a negative value. It is not suitable with the first priorities and timeliness as a priority is something hypothesis which states that the associations of that takes precedence in decision making local each construct variable have prediction positive expenditure quality. While timeliness variable is

182 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 a budget discipline oriented to the needs of society society service. Here are the results after using without leaving a balance between the financing the model of expenditure quality moderating of government administration, development and effect can be seen in Figure 3.

Figure 3 Expenditure Quality of Model with Moderation Effect

Based on Figure 3 shows the results of efficient and effectively. Effectiveness consist test the validity of convergent measured by the of poverty, economic growth, GDP per capita, outer loading, Communality and AVE (Average and human development index. All of about the Variance Extraced). In the test of convergent support local development. It suitable with the validity in exploratory research is acceptable if region document ini East Java that GDP per the outer loading> 0.4, communality> 0.5 and capita and human development index increasingly AVE> 0.5 (Hair et al, 2011). On models with each year also economic growth increase slow the expenditure quality use moderating effect is down. It also means that effectivity have high known that from 40 indicators of the expenditure influence to expenditure quality. East Java have just are only 21 indicators that have suitable of a good economic performance during 2006-2013, criteria in convergent validity. In models with because this region has industry field which get the moderating effects CR value also increased Product Domestic Regional Bruto second larger in compared to the first model. Indnesia after Jakarta. Results of test the construct validity of the In addition to test the construct validity, model expendituree quality there are 21 indicators reliability test measured by two criteria: that are relevant in improving local expenditure Composite Realibity and Cronbach Alpha to be quality in East Java and discriminant validity of greater value than 0.7 even if the value of 0.6 results indicate that the constructs of effectifity is acceptable for exploratory research (Hair et al, is higher than other constructs. It means that 2011). Results realibility constructs can be seen East Java use financial budget which economis, in Table 3.

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 183 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Table 3 Estimation Indicators Parameter Expenditure Quality No Construct Indicators Loading T-Hitung AVE CR Communality 1 Priority A1 0.408 2.817 0.501 0.826 0.501 A2 0.599 6.006 A3 0.866 20.544 A4 0.822 13.233 A5 0.744 7.626 2 Allocation B1 0.875 10.004 0.544 0.766 0.544 B2 0.845 9.136 B3 0.393 1.832 3 Timeliness C1 0.559 3.564 0.517 0.758 0.517 C2 0.728 4.811 C3 0.842 7.479 4 Accountability D4 0.801 7.054 0.611 0.759 0.611 D5 0.762 4.190 5 Effectivity E6 0.727 8.710 0.539 0.899 0.539 E6a 0.730 9.153 E9 0.436 3.282 E9a 0.485 3.788 E10 0.855 20.734 E10a 0.856 21.305 E11 0.821 13.349 E11a 0.827 13.684

Based on Table 3 can be seen that the test priority, allocation, timeliness, accountability and results obtained convergent validity outer loading effectiveness. Construct validity was also shown >0.4, communality, and Average Variance by the Average Variance Extracted (AVE). AVE Extracted (AVE) with a value of more than 0.5 and recommended value should be greater than 0.50 validity (t-value > 1.65). It shows that by test the which means that 50% or more of the variance in convergent validity of the variables and indicators the indicators can be explained. valid. AVE recommended value should be greater All of the construct have reached criteria than 0.50 which means that 50% or more of the if see from outer loading. For example, priority variance in the indicators can be explained. The have five indicators. Synchronization priority in result of all constructs on the expenditure quality the work planning work units (A3) has highest should be more than 0.50. outer loading than all. The result shows that East Beside the test of reliability and validity Java has a good priority expenditure and suitable indicators, another important measure indicated with document planning. Allocation also have 3 by the Composite Realibility (CR). CR> 0.6 indicators. Proportion of expenditure personnel is acceptable for exploratory research (Hair allocation (B1) has highest outer loading is 0,875. et al, 2011). These results indicate that the This shows that expenditure personnel in east whole construct has value CR> 0.6. That is, java very high because this continue expenditure. the reliability test on the model very well is a Expenditure personnel is higher than capital

184 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 expenditure because it pattern of expenditure on in east java because have high GDP per capita, if focused to government affairs (Larengkum et al, the high GDP per capita, economic growth in the 2014). state alleged that high anyway. Timeliness has three indicators but timely Structural evaluation PLS models can use of local government management report (C3) is the coefficient of determination (R2) and the path highest outer loading. This shows that region coefficient (β) for the independent variables and in East Java dicipline to report the result of use then can be measured through the t-value of each expenditure. Accountability has two indicators path. One way in the structural model through and the highest outer loading is Availability of the path coefficients that can be obtained from electronic procurement system (D4). This shows the bootstrapping. Bootstrapping was conducted that good accountability and can be seeing at to determine the result of the value (Mean, electronic procurement system in each region. STDEV, T-value) on a path coefficien. By using Effectivity have eight indicators, each indicator the 5% significance coefficient significant if they have impact to local development. GDP per capita have T-statistic values> 1.65. Here are the results (E10) is one of indicators which have highest in paths coefficients after bootstrapping are shown east java. It can be support conditional economics in Table 4.

Table 4 Bootstrapping Path Coeffisient

Standard Standard T Statistics Sample Path Coefficient Coeffisient Deviation Error (|O/ Mean (M) (STDEV) (STERR) STERR|)

Akuntabilitas -> 0.0491 0.0565 0.0969 0.0969 0.5068 Efektivitas Akuntabilitas -> Kualitas 0.2117 0.2149 0.1045 0.1045 2.0262

Alokasi -> Efektivitas 0.4762 0.498 0.0714 0.0714 6.6702

Alokasi -> Kualitas 0.0392 0.0531 0.1059 0.1059 0.37

Efektivitas -> Kualitas 0.0574 0.075 0.122 0.122 0.4703

Prioritas -> Akuntabilitas 0.3716 0.3915 0.0991 0.0991 3.7511

Prioritas -> Alokasi 0.012 0.0096 0.1137 0.1137 0.1056

Prioritas -> Efektivitas 0.024 0.0247 0.0667 0.0667 0.3594

Prioritas -> Kualitas 0.0792 0.0939 0.0587 0.0587 1.3485

Prioritas -> Waktu 0.3464 0.3805 0.0982 0.0982 3.5274

Waktu -> Akuntabilitas 0.0626 0.0592 0.1128 0.1128 0.5545

Waktu -> Alokasi 0.0171 0.0147 0.1327 0.1327 0.1285

Waktu -> Efektivitas 0.0112 0.0139 0.0655 0.0655 0.171

Waktu -> Kualitas 0.0139 0.0149 0.0298 0.0298 0.4672

Based on the results of path analysis show that coefficients are significant at 5% level there Jurnal Ekonomi Pembangunan, ISSN 1411-6081 185 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 are only 4 path coefficient of 14 path coefficients. c. Priority = 0.37 means that the influence of The path coefficient consist of accountability priority to accountability is 0.37. This means that influence significantly the local expenditure that if the priority increases by one unit then quality (0.21; 2.03), significantly influence the accountability will be increase by 0.37 the effectiveness to the allocation (0,47; 6,67), units. priorities which influence to the accountability d. Priority = 0.34 means that the influence (0.37; 3, 75) and the priorities that significantly of priorities to the timeliness is 0.34. This influence to timeliness (0.34; 3.53). Of the four means that if the priority increase by one unit the priority increase by 0.34 units. path coefficients were positive and significant influence of which have the meanings: Allocation constructs coefficient has the a. Accountability = 0,217 means that, the highest influence to the effectiveness of 0.47 influence accountability on the local and significance of the highest compared to expenditure quality amount to 0,217. This other constructs. This means that the allocation means that if accountability is increasing of variables accounted for 47% in improving one unit so the local expenditure quality will the expenditure quality. The results of path be increase by 0,217 units. analysis explains that the local expenditure b. Allocation = 0.476 means that a large quality is determined by the effectiveness of influence allocation to effectiveness of the allocation constructs. This means that the budget amounted to 0.476. This means that allocation in a region very important to support if the allocation increase by one unit then local development. It is development of the local the budget effectiveness will be increase by expenditure quality of the 2009-2012 in East Java 0.476 units. province.

Figure 4 Map of Expenditure Quality in East 2009-2012

186 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Based on Figure 4, it is shows that the Based on Table 5 show that change of region local expenditure quality has increased in in East Java which get score expenditure quality research period. In 2009 there were 14 districts/ increase, decrease or stagnant. Expenditure cities which have low expenditure quality such quality have score 1 (low), 2 (medium), 3 (high) and us , , Blitar, Magetan, 4 (very high). The region which get to defend their Mojokerto, Pacitan, , Ponorogo, predicate from low region until very high region. Probolinggo, Sidoarjo, Situbondo, Tulungagung, The region have change increasing expenditure Madiun and . Each region has a quality from low predicate in 2009 change to different spending quality characteristic despite be medium amount 2,6% such us Pasuruan. having a lower category. In 2010, the regions The region have change increasing expenditure have low expenditure quality is lower than quality from low predicate in 2009 change to be before, because there are 7 district/cities such us high amount 15,79% such us Bangkalan, Blitar, Jember, Madiun, Pacitan, , , Magetan, Situbondo, Tulungagung, dan Kota Sumenep, and Blitar. Almost of all region in Madiun. The region have change increasing Madura have a low expenditure quality without expenditure quality from low predicate in 2009 Bangkalan in 2010. In 2011 just have four district change to be very high amount 18,42% such us which of low expenditure quality such us Jember, Banyuwangi, Mojokerto, Pacitan, Ponorogo, Pamekasan, Pasuruan and Tulungagung, in 2012 Probolinggo, Sidoarjo dan Kota Surabaya. there is no region which have low expenditure quality. It means that East Java have a good After that the region have change increasing expenditure quality because it increasing every expenditure quality from medium predicate in year. Beside that East Jave supported by good 2009 change to be high amount 2,6% is Jember. local development each region, then good public The region have change increasing expenditure service for example available financial media. quality from medium predicate in 2009 change Expenditure quality in 2009 the low category to be very high amount 13,16% is Bondowoso, (37%), medium (16%), high (21%) and very high Gresik, Sampang, Sumenep, and Tuban. (26%) have increase in 2012 that consists of only The next region which have predicate three category includes medium (8%) , high (34%) decreasing from 2009 to 2012 just describe 2,6% and very high (58%). In 2012 the region has a very like Lamongan. Lamongan one of region has high high of expenditure quality that have reach >50% predicate decrease to be medium predicate. Then, of East Java. That is means, half of the region the region have change decrease expenditure in East Java has a good expenditure quality. quality from very high predicate in 2009 change Good expenditure quality is influence with five to be medium amount of 2,6% is Pamekasan. variables according by largest such us variable The region have change decrease expenditure efectivity, priorities, allocation, accountability quality from very high predicate in 2009 change and timeliness. Here are change of expenditure to be high amount of 7,89% are , Lumajang quality in east Java 2009-2012 in Tabble 5. and Kediri city. While the region get stagnant predicate there are two class like high to high and Table 5 Change of Expenditure Quality in very high to very high. The region have stagnant East Java 2009-2012 expenditure quality from high predicate in 2009 KB 2012 to be high amount of 7,89% are Nganjuk, Batu KB 1 2 3 4 and Pasuruan City. The region have stagnant 2009 expenditure quality from very high predicate 1 0 1 6 7 in 2009 to be very high amount of 15,79% are 2 0 0 1 5 Bojonegoro, Madiun, Ngawi, Trenggalek, 3 0 1 3 4 and Mojokerto city. 4 0 1 3 6

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 187 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Based on describe about change of Timeliness of budget in East Java is also expenditure quality from 2009-2012 can know very good. This is supported by the budget- that the region which have increase predicate regulations setting, timely submission of financial expenditure quality amount of 63,16%, then the statements, and Timeliness of local government region which have decrease predicate expenditure management report. Based on the results of the quality amount of 13,16%. While the region which data model of the expenditure quality can be have stagnant predicate expenditure quality know that the largest factor loading is achieved by amount of 23,68%. All of expenditure quality the timeliness of local government management influence by the budget priorities are priorities report of 0867. It means that timeliness of local suitability, implementations of minimum government management report influence 86% standard service, synchronization priority for the to the local expenditure quality. In case of delay working plan work unit, synchronization priority in submission of the report will impact to lack of in the work plan and budget of the regional financial performance in the implementation of work units, implementation of the priorities public revenue and expenditure. The financial in the implementation budget document was statements will be submitted to the State Audit appropriate. It means that East Java doing Agency (BPK) after the end of the budget used. activities according to the working plan on Based on that, the State Audit Agency will give document region by Development Planning opinions related to the financial management Medium Run of Region (RPJMD). Determination system. It same with the decision of the Ministry of priority aims to improve control, transparency, of Internal Affairs in 2014 about the performance participation, accountability through decision of financial reports that East Java had the highest making based (Alkin & Christie, 2004). score compared to other province in Indonesia. Allocation of expenditure quality in East Accountability is aspect of the disclosure Java is higher personnel expenditure than of information in transparency process to public capital expenditure. The allocation of personnel service of all budget activities have done. Based expenditures are routine expenditures incurred on the Report of Opinion State Audit Agency each year by region to provide salaries to civil since 2010 until 2014 East Java province has servant in the government. Allocation consist gained the title of financial statements WTP of three indicators. Indicators which influence (unqualified) respectively. In 2015, East Java to expenditure allocation is proportion of back predicate WTP in financial report. This expenditure on personnel allocation, proportion of means that the area of East Java has a level the expenditure allocation on goods and service, of integrity and high transparency between proportion of capital expenditure. Indicators government officers along with the participation which have high score is personnel allocation and society of East Java. WTP Opinion may reflect capital expenditure get lower value than personnel that accountability has been implemented to allocation and goods and service allocations. produce good performance. Accountability in It means that available infrastructure saving the region is needed to produce the performance because East Java have deficit budget in 2010 to of governance, regional development and public 2012. Capital expenditure allocation was based service better than before. on the local needs for facilities and infrastructure. Effectiveness in development also needed. The higher level of capital investment expected to The construct is an indicator of the effectiveness improve the quality of public services, because the of the impact of a development activity. It is fixed assets due to capital expenditure is a key for necessary that the planned activities will give the implementation of governmental duties and positive impact the maximum output. So, with provides services to the public (Oktora et al, 2013) a development activities financed through local

188 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 expenditure is expected to get efficient ouput, Researchers try to use this region in the province economic and effective. The effectiveness of which of East Java because based on the results of can directly influence the quality of expenditure previous studies have an order higher than any includes poverty, economic growth, the GDP per other province in Indonesia. Factors that support capita and Human Development Index (HDI). the quality of budget and expenditure is as well as The highest value of CR was also achieved the efforts of local governments to efficiency use by the construct of the effectiveness of 90%, of the budget, while the factors that resistor the it means that the effectiveness construct has quality of budget and expenditure is limited time large influence in the local expenditure quality. in the budget submission, the lack of preparation Expenditure quality in East Java province has in the preparation of the budget, less than the been using highly efficient and effective spending maximum community participation, the limited in reach performance targets. This is same with ability of local budgets (Susetyo et al, 2014) the priorities construct that describes the overall performance of the construction in East Java 4. Development Economic Impact in accordance with the working plan on budget At the result expenditure quality has high document region guided by RPJMD in region. relation to development economic, this show in The difference of this study with previous the construct variable effectivity. Indicators of research is the variable used as well as different effectivity consist of poverty, economic growth, locations to analyze the expenditure quality GDP per capita and HDI. Each of these variables and its relation to development performance. directly affects the expenditure quality. Poverty Heriwibowo et al (2016) data used particularly is one of indicator to measure local development in the variable effectivity construct consists of which affects the quality of spending by 72%. If a group of performance indicators of output, a region has a high expenditure quality will be outcome, and impact. While in this particular able to reduce poverty in the region. At 2013 East research the effectivity of using only performance Java reach the largest number of poor people in output and impact indicators. Beside that, the Indonesia, however, when seen from the changes performance indicators use effects of poverty, in poverty in East Java experienced a decline unemployment, gini index, economic growth, per in 2009 were 5,860,736 inhabitants by the year capita income and human development index. 2013 as many as 4.89301 million inhabitants. Each of these performance indicators are also A poor person in East Java from year to year used in the construction of t and t + 1 to see the has decreased quite stable. However, it is when impact in subsequent years. The method used compared with other regions in Indonesia is an at that Structural Equation Modelling (SEM), area that has the highest number of poor people. but previous studies add a cluster analysis Poverty problem in East Java is the central issue, because the data produced is not homogeneous. which means economic developments in East This study does not require a cluster analysis Java pay more attention to poverty reduction because the data is already homogeneous, in a faster than the national. previous study, the research areas that are used Economic growth is also one of indicators that throughout the provinces in Indonesia, while influence expenditure quality by 43%. This means this study within the scope of the district/city, that if high expenditure quality, economic growth especially in East Java. The results are significant will also increase. The national economy in 2014 indicators also different, the earlier study as reached 5.02%, lower than in 2013, which reached many as 24 indicators whereas this study of 21 5.58%. Meanwhile, East Java grows up 6.08% in indicators. Variable which highest is priority in 2013 and 5.86% in 2014. In the region level, the research before while this research is effectivity. economic slowdown occurred in almost all regions,

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 189 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192 except the seven regions that experienced an high HDI value in 2014 in the province of East increase in economic growth. The region includes Java city of Surabaya at 78.97 while the districts Ponorogo, Malang, Jember, Bojonegoro, Gresik, with the lowest HDI value is Sampang amounted Bangkalan and Kediri. Economic growth the to 62.39. Based on pre-defined categories that region varies between 0.07 to 7.19%. In 2014 Surabaya among the regions with medium HDI economic growth was highest in Bangkalan, while category while Sampang including low category. economic growth was lowest in Sampang. Both of So, human development index in East Java must these areas are included in Madura Island region be increased to get expenditure quality well. HDI has a substantial contribution to East Java in the give the second high score in construct effectivity mining and quarrying sector, especially oil and is 82%. This important to increase three category gas mining. like us health, education, and a decent life to Income per capita is often referred to as the support expenditure be efficiency. This result GDP per capita is used to see if people’s income different with research before shows that there was increases every year. The GDP per capita is one no significant effect between spending allocations indicator that has the highest score in the outer directly to the quality of human development as loading variable construct of effectifity is 0.855 or measured using the Human Development Index 85%. GDP per capita East Java in 2014 occurred (HDI) (Vegirawati, 2012). in the town of Kediri Rp 315 960 thousand and was followed by Surabaya Rp 128 820 thousand, 5. Conclusion Gresik Rp 67 048 thousand, Sidoarjo regency Expenditure quality as expenditure Rp 62 717 thousand and Pasuruan Rp 60 269 allocated by regional development priorities done thousand. Economy is always growing during efficiently and effectively, timely, transparent, 2010-2014 followed by an increase in GDP per and accountable. This research was conducted capita in all regions. Its growth varies between to look at the expenditure quality in East Java 5.16 to 38.89%. GDP per capita growth was through the kinds of expenditure qualithy: highest in Sumenep (38.89%) while the lowest personnel expenditure, capital expenditure, growth occurred in Bangkalan (5.16%). This expenditure of goods and services, expenditure condition proves that expenditure quality which grants, social assistance expenditure, exenditure high will be increase GDP per capita. for the results, financial aid expenditure and Human Development Index in East Java is expenditure was not unexpected. Expenditure still below the national HDI levels from year to quality is very important to know what potential year. East Java has a HDI level of 71.06 in 2009 and or program has been implemented in an area. continued to increase until the year 2013 reached Measuring the quality of expenditure areas 73.54. An increase that occurred in East Java has require particular model because it is an abstract yet to reach the level of HDI at the national level. concept or can not be measured directly. This illustrates that the quality of the population This research aims to look at whether in East Java is still below the average growth rate expenditure government has been targeted, of the National IPM both in terms of productivity, timely and beneficial to society. This research equity, sustainability and empowerment. From also establish a model of expenditure quality from the side it is expected that society can continue a wide range of variable indicator constructs. This to produce so the development process continues research in East Java because it is one of province to run smoothly. In addition it also followed the best in Indonesia. thus aims to determine what by equalization indicating equitable access to indicators has a maximum score and need to be economic and social resources for the entire optimized while indicators that have lowscore will population in East Java. One area that has a very be increased. This research to measure indicators

190 Jurnal Ekonomi Pembangunan, ISSN 1411-6081 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

local expenditure quality, especially region that that affect the expenditure quality in East Java have growth rates below the national average on and knowing the performance of expenditure the timeliness of the budget. Suitability priority quality district. Benefit from this research is should also be improved better to be more in policy makers in this regard the government as line with the development activities planned in policy makers in expenditure through the budget each unit work. Available to need for alignment to improve the potential of the region and public between the regulation of regional development services. Beside that, to know any district that has planning, financial management and financial a very high capability in managing expenditure accounting systems and performance evaluation regional. of regional development. It aims to improve Local expenditure quality consist of five the capacity of Government officials and active variables construct each have a number of role society in development priorities through different indicators. Based on the results obtained expenditure quality. by processing 21 indicators that influence the expenditure quality in East Java. From five 6. Acknowledgments variables that have the highest influence on Thanks authors say to Mr. Prof. Dr. Ir expenditure quality is effectivity. Effectivity has Bambang Juanda MS and Mrs. Dr. Ir Sri Mulatsih a value of more than 50% in describing variations MSc Agr as a mentor who has given advice in of expenditure quality model in East Java. this research. Thanks also goes to the author The path coefficients associated positively and of the Ministry of Home Affairs, Department of significantly there are 4 of them accountability Balancing General of Finance, Ministry of Finance, that influence significantly the local expenditure the Bureau of East Java who have provided quality (0.21; 2.03), significantly influence information data collection for this research. the effectiveness of the allocation (0,47; 6,67), Thanks also to the Education Fund Management priorities which influence to accountability Institution (LPDP) Ministry of Finance as the (0,37; 3,75) and the priorities that significantly giver of scholarships to researchers until this influence the timeliness (0.34; 3.53). Besides map research can be completed. This research as changes of expenditure quality from 2009 to 2012 part of the learning process, the authors realized has increased continuously. In 2009 the region this research is still a lot of limitations, for it is has a low level of quality of spending by 37% expected to have the advice and input of various and in 2014 there was no region that has a lower parties to be improved. Authors hope this work expenditure quality category. In 2014 only three can be useful for the development of science and categories (medium, high, very high). It shows knowledge. that East Java every year has resulted of local government performance is better in order to have 7. References an positive impact on development conditions. Alkin, M.C. and Christie, C.A. (2004), “An Available with local expenditure quality of East evaluation theory tree”, in Alkin, M.C. (Ed.), Java can determine each district/city potential of Evaluation Roots: Tracing Theorists’ Views what is supposed to allocate expenditure needs to and Influences, Sage, Thousand Oaks, CA, be improved in the region targeted, accountable pp. 12‐65. and effective. Based on the research that East Java is Asyraf, Wan Mohamad Bin Wan Afthanorhan. supported by high effectivity consist of indicators 2013. A Comparison Of Partial Least Square poverty, economic growth, GDP per capita and Structural Equation Modelling (PLS SEM) Human Development Index. So, suggestion in and Covariance Based Structural Equation this research is need a policy that give to increase Modelling (CB-SEM) for Confirmatory

Jurnal Ekonomi Pembangunan, ISSN 1411-6081 191 Avalaible online at http://journals.ums.ac.id

Jurnal Ekonomi Pembangunan, 17 (2), December 2016, 176-192

Factor Analysis. International Journal Larengkum, Dirgahayu, Vecky Masinambow of Engineering Science and Innovative dan Krest Tolosang. 2014. The Influence Technology (IJESIT). Vol 2, Issue 5, Of The Local Government Budget To The September 2013. Regional Gross Domestic Product In District Talaud Islands. Periodical Efficiency Bagozzi, R.P., & Yi, Y. 1988. On the Evaluation of Journal. Manado: IEP – FEB Sam Ratulangi Structural Equation Models. Journal of the University. Academy of Marketing Science, 16 (1), 74-94. Oktora, FE and Winston P. 2013. Relationship Fornell, C., & Larcker, D.F. 1981.Evaluting Analysis Of Revenue, General Allocation Structural Equation Models With Of Funds, And Special Fund Allocation For Unobservable Variables and Measurement Capital Expenditure On Local Government Error. Journal of Marketing Research, 18 Tolitoli Central Sulawesi Province. (1), 39-50. Accountability Journal Vol 2 (1) Juni 2013. Ghozali, Imam and Hengky Latan. 2015. Partial Rustiadi E, Saefulhakim S, Panuju DR. 2011. Least Squares: Concepts, Technique, and Planning and Development Regional. Application use SmartPLS 3.0 Program. Jakarta (ID): Crespent Press and Institutions Edition 2. Semarang: Undip. of Pustaka Obor Indonesia. Hair, Joe F. , Christian M. Ringle & Marko Sholihin, M, Richard P, Musa M, Jing L. 2011. Goal- Sarstedt. 2011. PLS-SEM: Indeed a Silver setting Participation and Goal Commitment: Bullet, Journal of Marketing Theory and Examining the Mediating Roles of Procedural Practice, 19:2, 139-152. Fairness and Interpersonal Trust in a UK Heriwibowo, Dedy, Bambang Juanda, Setia Hadi, Financial Service Organisation. The British Sapto Supono. 2016. The Measurement of Accounting Review: Elsevier Journal 43, pp Local Government Spending Quality with 135-146. Indicators of Sustainable Local Development Susetyo, IB, Tjahjanulin D, Wima YP. 2014. in Indonesia. Journal of Economics and Quality Budget and Regional Expenditure Sustainable Development. Vol. 7, No. 4. Provision of Public Services Acceleration in Hulland, J. 1999. Use of Partial Least Squares Encouraging development Backward Region (PLS) in Strategic Management Research: (Study Case in Banten, Banten Province). a Review of Four Recent Studies. Strategic Public Administration Journal (JAP), Vol. 2, Management Journal, 20 (2), 195-204. No. 3, pp 511-517. Juanda B, Halim A, Azis N, Kaiwai H, Heriwibowo Todaro MP, Smith SC. 2006. Economic D. 2013. Evaluation of Regulation Local Development. Edition 09. Benardi J, Saat S, Financial Management and It’s effect on Hardani W, Editor. Jakarta (ID): Erlangga. Quality Efforts Local Expenditure. Jakarta. Vegirawati, Titin. 2012. Expenditure Direct Ministry Financial. Effect on The Allocation Quality Human Kay Wong, Ken Kwong. 2013. Partial Least Development (Study Case at Government Square Structural Equation Modeling District/City in South Sumatera). Economic (PLS-SEM) Techniques Using SmartPLS. and Accounting Information Journal Marketing Bulletin, 24 Technical Note 1. (JENIUS). Vol 2 (1).

192 Jurnal Ekonomi Pembangunan, ISSN 1411-6081