Analyze the Effect of General Allocation Funds, Revenue Sharing

Funds and Regional Original Income to Regional District

Expenditure in North Sumatera Province

A. Mahendra

Universitas Katolik Santo Thomas Sumatera Utara, Indonesia

Keywords: General Alocation Funds, Revenue Sharing Funds, Regional Original Income, Regional District

Expenditure

Abstract: This research is intended to know the influence of the General Alocation Funds, Revenue–Sharing Fund,

and regional original income to Regional District Expenditure and to detect the possibility of flypaper effect

occurrences at Local Expenditure in Sumatera Utara Province. Population in this research is the regency/city

in Sumatera Utara Province, and 33 of them were selected to be the samples for this research through

purposive sampling technique. Estimates conducted by the multiple regression analysis. The data that were

used in this study were secondary data, consisted of General Alocation Funds, Revenue–Sharing Fund,

Regional Original Income, and Local Expenditure for the year 2011-2015. The results of this research, that

General Alocation Funds, Revenue Sharing Funds and Regional Original Income simultaneously Receipt

have a positive relationships to the Regional District Expenditure.

1 INTRODUCTION

Intergovernmental transfers are a common

phenomenon that occurs in all countries in the world

apart from the system of government and has even

become the most prominent feature of financial

relations between central and regional governments.

The main purpose of the transfer implementation is

to internalize fiscal externalities that arise across

regions, improve taxation systems, correct fiscal

inefficiencies, and fiscal distribution between

regions (in Kuncoro, 2007: 2).

According to Brojonegoro and Vazquez (2005:

159): Balancing funds are regional funding sourced

from the APBN consisting of Revenue Sharing

Funds (DBH), General Allocation Funds (DAU),

and Special Allocation Funds (DAK). In general,

Revenue Sharing Funds (DBH) and General

Allocation Funds (DAU) are classified into

unconditional transfers or commonly referred to as

unconditional transfers, while Special Allocation

Funds (DAK) are classified as conditional transfers

or commonly referred to as conditional transfers.

Basically, the transfer of central government to

regional government can be distinguished on

revenue sharing (revenue sharing) and assistance

(grants). A lot of literature on economics and public

finance explains a number of reasons why transfers

from the central government to local governments

are needed. There are at least five reasons that

support the transfer from the center to the regions.

These five reasons, according to Mulyana et. al.

(2006: 32), namely maintaining or guaranteeing the

achievement of minimum standards of public service

throughout the country, besides the goal of the

transfer is to reduce the horizontal financial gap

between regions, reduce the central-regional vertical

gap, overcome the problem of the effect of inter-

regional public services, and to create stabilization

of economic activities in the area. The dominant role

of transfers relative to local revenue in financing

regional government spending actually does not

provide good guidance for the government on the

transfer flow itself. Transfer allocations in

developing countries are generally more based on

the aspect of spending but less attention to local tax

collection capabilities. As a result, from year to year

local governments always demand greater transfers

Mahendra, A.

Analyze the Effect of General Allocation Funds, Revenue Sharing Funds and Regional Original Income to Regional District Expenditure in North Sumatera Province.

DOI: 10.5220/0009493100710076

In Proceedings of the 1st Unimed International Conference on Economics Education and Social Science (UNICEES 2018), pages 71-76

ISBN: 978-989-758-432-9

from the center, rather than maximally exploring

local taxes. This situation is also found in the case of

district and city regional governments in Indonesia

(Mulyana, 2006).

According to observers of regional autonomy,

Mardiasmo (2002), new regions tend to rely on

general allocation funds (DAU) and special

allocation funds (DAK) from central government

transfers without optimal efforts to find sources of

local revenue (PAD). This condition reflects the lack

of autonomy of an autonomous region. Even worse,

it has not been proven to be independent, new

proposals for new expansion have emerged.

The achievement of autonomous autonomy is a

great hope from the regional government to develop

the region based on their own capabilities and

initiations. However, the fact is that from year to

year that expectation is felt further away from

reality. Facts that often occur at this time, the

regions are too dependent on general allocation

funds to finance their regional expenditure, without

trying

Therefore, the demand to change the spending

structure becomes stronger, especially in regions that

experience low fiscal capacity (Halim, 2004).

Regions with low fiscal capacity tend to experience

strong fiscal pressure. This low capacity indicates a

low level of regional independence. Regions are

required to optimize the potential income they have

and one of them is by giving a greater portion of

regional expenditure to the sector

The change in expenditure allocation is also

intended for the construction of various capital

facilities. The government needs to facilitate various

economic improvement activities, one of them is by

opening investment opportunities. Infrastructure

development and the provision of various facilities

are carried out to increase the attractiveness of this

investment (Supardi, 2008).

Efforts to improve the quality of public services,

the Regional Government is obliged to allocate

funds in the form of budget in the APBD to add

fixed assets. This regional expenditure allocation is

based on regional needs for facilities and

infrastructure, both for the smooth implementation

of government duties and for public facilities. So far

regional spending has been used more for routine

spending which is relatively less productive. Saragih

(2003) states that the use of spending should be

allocated for productive matters, for example to

carry out development activities and government

revenues should be more for public service

programs. This opinion implies the importance of

allocating expenditure for various public interests.

The facts above generally show that the fiscal

behavior of local governments in responding to

transfers from the central government is a major

concern in supporting the effectiveness of transfers.

Empirical evidence regarding local government

responses to transfers and own income (taxes) has

been widely discussed by several researchers, such

as Kuncoro (2007) who examined the financial

performance of local governments in Indonesia, the

results showed that any increase in transfer

allocations was followed by higher spending growth.

This implies that the dependence of regional

governments on transfers from the center will

increase. Research conducted by Panggabean

(2014), the results of the analysis are not different.

That is, when regional revenues come from

transfers, the stimulus for the resulting expenditure

is different from the stimulus that arises from

regional revenues. When local governments respond

(spend) more by using transfer funds rather than

using their own abilities (income).

2 THEORICAL FRAMEWORK

1. Regional Expenditures

Based on Law Number 32 of 2004 Article 1

Paragraph 16, regional expenditure is all regional

obligations that are recognized as a deduction of net

worth in the period of the relevant fiscal year. The

main regional financing sources in the framework of

implementing fiscal decentralization consist of local

revenues, balance funds, and regional loans. The

financial relationship between the central and

regional governments is principally more about the

issue of power sharing. Especially the right to make

decisions about the budget, namely how to obtain

and spend it. Regional shopping is used in the

framework of implementing government affairs that

are the authority of the province or district / city,

which consists of compulsory and optional matters

that are determined by statutory provisions.

2. General Allocation Funds

General Allocation Funds - hereinafter referred to as

DAU are funds sourced from APBN revenues

allocated with the aim of equal distribution of

financial capacity between regions to fund regional

needs in the context of implementing

decentralization (Law Number 33 of 2004, Article 1

paragraph 21). The total amount of DAU is set at

least 26 percent of the domestic net income

stipulated in the APBN. DAU is also intended to

close the fiscal gap between regions in order to

realize the independence of regional governments in

carrying out their functions and duties in serving the

community (Panggabean, 2014: 13 )

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

3. Revenue Sharing Funds

Revenue Sharing Funds hereinafter abbreviated as

DBH are funds sourced from the APBN allocated to

regions based on certain percentage figures

according to the realization of tax and non-tax

revenues (natural resources), in order to fund

regional needs in the context of implementing

decentralization. The main purpose of DBH transfers

is intended to reduce vertical imbalance between the

central government and regional governments. DBH

is a strategic balancing fund for regions that have

central sources of revenue in their regions, including

central tax revenues and revenues from natural

resources. The regional portion of the tax and natural

resources has been determined based on a certain

percentage (Masdjojo and Sukartono, 2009: 37).

4. Regional Original Revenue (PAD)

Regional governments in financing their

expenditures, in addition to using transfers from the

central government, also use their own funding

sources, namely Regional Original Revenue.

According to Law No. 33 of 2004, Regional

Original Revenue - hereinafter abbreviated as PAD,

is regional income derived from the results of local

taxes, the results of regional retribution, the results

of the separated management of regional assets, and

other legitimate PAD intended to provide flexibility

to the regions in order implementation of regional

autonomy as a manifestation of decentralization.

5. Thinking Framework The frame of mind is

as follows

6. Hypothesis

The hypothesis is a temporary answer to the problem

that has been formulated. From the explanation of

the theory and the formulation of the problem above,

the Hypothesis is formulated as follows:

General Allocation Funds, Profit Sharing Funds, and

Regional Original Revenues affect Regional

Expenditures in North Sumatra.

3 RESEARCH METHOD

1. Population and Sample

According to Arikunto (2010) that the population is

all objects to be studied. The population in this study

are General Allocation Funds, Revenue Sharing

Funds, Regional Revenues and Regional

Expenditures in North Sumatra. The sample in the

study were data on General Allocation Funds,

Revenue Sharing Funds, Regional Original

Revenues and Unemployment and Regional

Expenditures in North Sumatra from the period of

2011 to 2015.

2. Operationalization of Variables

The variables used in this study are as follows:

a. Regional Expenditures are all regional

expenditures whose benefits exceed one fiscal

year and will increase regional assets or wealth.

b. General Allocation Fund is the total transfer of

funds from the central government which is

given to the regional government.

c. Revenue Sharing Fund is the transfer of funds

from the central government to the regional

government in the form of revenue sharing

funds derived from taxes and non-taxes.

d. Regional Original Revenue is the total

realization of regional revenues originating

from and other legitimate local revenue.

3. Data Analysis Techniques

The data analysis technique used in this study is to

use the Multiple Regression Analysis Model.

Multiple linear regression analysis aims to test

hypotheses about the strength of independent

variables on the dependent variable with the

following model:

Where :

Y: Regional Expenditures (in rupiah)



: Intercept

321



: Regression coefficient

X1: General Allocation Funds (in rupiah)

X2: Profit Sharing Funds (in rupiah)

X3: Regional Original Income (in rupiah)



: Term of Error.

4 ANALYSIS

Table 1: Regression Results

Coefficients

Model

Unstandardized

Coefficients

Standar

dized

Coeffic

ients

t Sig. B

Std.

Error Beta

1 (Cons

tant)

976516

1.408

441103

0.579

2.21

.270

1.555 .329 .815

4.72

.133

7.140 2.830 .099

2.52

.240

X3 .900 1.133 .140 .795 .572

Analyze the Effect of General Allocation Funds, Revenue Sharing Funds and Regional Original Income to Regional District Expenditure in

North Sumatera Province

a. Dependent Variable: Y

From the regression results above, the estimation

model can be formed as follows:

Y = -9765161,408 + 1,555 X1 + 7,140 X2 + 0,900

Model Interpretation

Based on the estimation model above, it can be

explained the influence of independent variables,

namely the value of general allocation fund (X1),

profit sharing fund (X2), regional original income

(X3) on regional expenditure in North Sumatra as

follows:

1. General Allocation Fund

General Allocation Funds turned out to have a

positive effect on regional spending in North

Sumatra. This is indicated by the regression

coefficient X1, which is equal to 1.555. This means

that for every 1% increase in general allocation

funds, regional expenditure will increase by 1.555%

(ceteris paribus).

2. Profit Sharing Funds

Revenue Sharing Funds have a positive effect on

regional spending in North Sumatra. This is

indicated by the regression coefficient X2, which is

equal to 7.140. That is, every 1% increase in profit

sharing funds will increase regional expenditure by

7.140% (ceteris paribus).

3. Regional Original Income

Regional Original Revenue turns out to have a

positive effect on regional spending in North

Sumatra. This is indicated by the X3 regression

coefficient value of 0.900. This means that for every

1% increase in regional revenue, regional

expenditure will increase by 0.900% (ceteris

paribus).

Testing Individual Regression Coefficients (Statistic

T Test)

1. General Allocation Fund

For general allocation fund variables obtained t-

count value of 4.729 with a probability value

(significance) of 0.133. Thus Ho is accepted,

because the probability value is greater than the

value of 0.05 (0.133> 0.05) and t-count <t-table

(4.729 <12.706). This means that it can be

concluded that the general allocation fund variable

does not have a significant (significant) effect on

regional expenditure variables in North Sumatra by

testing at a 95% confidence level (= 5%).

2. Profit Sharing Funds

For the profit sharing fund variable, the t-count

value is 2.523 with a probability value (significance)

of 0.240. Thus Ho is accepted, because the

probability value is greater than the value of 0.05

(0.240> 0.05) and t-count <t-table (2.523 <12.706).

It means that it can be concluded that the profit

sharing fund variable does not have a significant

(significant) effect on regional expenditure variables

in North Sumatra by testing at a 95% confidence

level (= 5%).

3. Regional Original Income

For the region's original income variable, the t-count

value was 0.795 with a probability value

(significance) of 0.572. Thus Ho is accepted,

because the probability value is greater than the

value of 0.05 (0.572> 0.05) and t-count <t-table

(0.795 <12.706). It means that it can be concluded

that the variables of local revenue have no

significant (significant) effect on the variable

regional expenditure in North Sumatra by testing at

a 95% confidence level (= 5%).

Testing the Regression Coefficients Simultaneously

(Statistic F Test) To prove the R-square value above,

testing is done using the F test. The hypothesis is as

follows:

H0 :



1 =



2 = 0

Ha :









That is, based on available data, it will be tested

against 1 and 2 together, whether equal to zero,

which means that there is no significant effect on the

dependent variable, or not equal to zero, which

means having a significant influence on the

dependent variable.

Table 2: Test Anova

ANOVA

Model

Sum of

Squares df

Mean

Square F Sig.

1 Regr

essio

132741

179171

610.730

44247

05972

3870.2

281.86

.044

Resi

dual

156981

575020.

085

15698

15750

20.085

Tota

132898

160746

630.810

a. Dependent Variable: Y

b. Predictors: (Constant), X3, X2, X1

Based on the output of the SPSS program, the F-

calculated value is 281.861 with a probability value

UNICEES 2018 - Unimed International Conference on Economics Education and Social Science

(significance) of 0.044. Thus Ha is accepted,

because the F-count> F-table (281,861> 215,707)

and the probability value (significance) is greater

than the value 0,05 (0,044 <0,05). It means that it

can be concluded that the variable X1 (general

allocation fund), variable X2 (profit sharing fund)

and variable X3 (regional original income) have a

significant (significant) effect on regional

expenditure (Y) at a 95% confidence level (= 5%).

Table 3: Coefficient Determination

Model Summary

odel

Square

Adj

usted

Square

Std.

Error of the

Estimate

1 .

999

.99

3962

09.004

a. Predictors: (Constant), X3, X2, X1

Spss program output results, it can be seen that the

R-square value is equal to 0.999, which means that

the variable X1 (general allocation fund), X2

(revenue sharing), X3 (local revenue) are jointly

able to provide an explanation of variations in

regional spending in Sumatra North is 99.9% while

the remaining 0.01% is explained by new variables

that are not included in the model estimation.

5 CONCLUSIONS

Based on the results of research on the effect of

general allocation funds, funds for revenue sharing

and local revenues on regional expenditure in North

Sumatra, the following conclusions can be drawn:

(1). From the results of the F test, it was concluded

that the general allocation fund, revenue sharing and

local revenue during the period 2011 to 2015 had a

significant effect simultaneously on regional

spending in North Sumatra at a 5% significance

level. Thus the research hypothesis is accepted. (2).

Based on a partial test (t test), general allocation

fund variables, revenue sharing and local revenues

did not significantly affect the variable expenditure

in North Sumatra by testing at a 95% confidence

level (= 5%), (3). The coefficient of determination

(R) is 0.999, which means that the variable X1

(general allocation fund), X2 (profit sharing), X3

(local revenue) are jointly able to explain 99

variations in regional spending in North Sumatra.

9% while the remaining 0.01% is explained by new

variables that are not included in the model

estimation.

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