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 JAVA 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 Indonesia Corresponding E-mail: [email protected] Recieved: July 2016; Accepted: December 2016 Abstract This research aim is to analyze local expenditure quality in East Java 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