The Effect of the Quality of Regional Spending On the Economic Growth of Districts and Cities In Central Java Province

Abstract

This study examines the effects of capital expenditure, education expenditure, and health expenditure on economic growth in regencies and cities of Central Java Province, with fiscal autonomy as a moderating variable. The study addresses the inconsistent evidence regarding the effectiveness of regional government expenditure in promoting economic growth and the role of fiscal autonomy under fiscal decentralization. A quantitative approach was employed using balanced panel data from 24 regencies and cities in Central Java Province during the 2020–2025 period, resulting in 144 observations. The data were analyzed using panel data regression and Moderated Regression Analysis (MRA), with the Common Effects Model identified as the most appropriate estimation model. The results indicate that capital expenditure has a positive and significant effect on economic growth, whereas education expenditure and health expenditure do not have significant effects. Fiscal autonomy has a significant negative direct effect on economic growth. Moreover, fiscal autonomy significantly strengthens the positive relationship between capital expenditure and economic growth, suggesting that regions with greater fiscal capacity can utilize capital expenditure more effectively to stimulate economic performance. However, fiscal autonomy does not significantly moderate the effects of education expenditure or health expenditure on economic growth. These findings highlight the importance of effective expenditure allocation and stronger fiscal capacity in promoting sustainable regional economic growth.