Fiscal Transfers and Local Revenue: Examining the Mediating Role of Capital Expenditure in Indonesia

Ilham djuhri winanda; Kamaliah kamaliah; Ulfa Afifah

Authors

Ilham djuhri winanda Universitas Riau Author
Kamaliah Universitas Riau Author
Ulfa Afifah Universitas Riau Author

Keywords:

General Allocation Fund, Special Allocation Fund, Regional Original Revenue, Stewardship Theory

Abstract

Purpose
This study examines the mediating role of capital expenditure in the relationship between fiscal transfers (DAU and DAK) and Regional Original Revenue (PAD).

Design/methodology/approach
Using a quantitative approach, this study analyzes panel data from regencies/cities in Riau Province (2020–2024) through path analysis and Sobel test mediation using SPSS 23.

Findings
The results show that DAK positively affects capital expenditure, while DAU negatively affects it. Both DAU and DAK do not have a significant direct effect on PAD. However, capital expenditure significantly mediates the effect of DAK on PAD, but not DAU, indicating differences in allocation effectiveness.

Originality/value
This study highlights capital expenditure as a key mechanism linking fiscal transfers to revenue performance and demonstrates the differing impacts of discretionary and earmarked transfers.

Practical implications

The findings emphasize the need to strengthen capital expenditure allocation and improve the effectiveness of fiscal transfer policies.

Research limitations/implications

The study is limited to one regional context and a set of fiscal variables, suggesting future research should include broader institutional and economic factors.