ECONOMIC GROWTH AS A MODERATOR OF THE EFFECT OF LOCAL OWN-SOURCE REVENUE AND INTERGOVERNMENTAL TRANSFERS ON CAPITAL EXPENDITURE

Abstract

This study examines the effects of Local Own-Source Revenue (LOSR), the General Allocation Fund (GAF), the Special Allocation Fund (SAF), and the Revenue Sharing Fund (RSF) on capital expenditure, with Economic Growth (EG) tested as a moderating variable, in regency/municipal governments in Central Kalimantan during the 2016–2023 period. Using panel data from 13 regencies and 1 city (112 observations), this research estimates random-effects regressions with natural log–transformed fiscal variables. The results show that GAF and SAF have significant positive effects, while LOSR and RSF have no significant effect on capital expenditure. Economic growth also does not directly affect capital expenditure and does not moderate the relationships between LOSR, GAF, SAF, or RSF and capital expenditure. These findings are consistent with the flypaper effect phenomenon, in which formula-based transfers rather than LOSR more strongly drive capital expenditure, providing implications for optimizing regional development budgeting.