Impact of Government Expenditure, Human Capital and Regional Economic Development Performance on People Welfare in Bali Province, Indonesia

Abstract

Many countries in the world implement the delegation of authority or decentralization of governance in order to maximize the function of public services and improve social welfare. Similarly, Indonesia has  implemented decentralization since 2001. Bali is one of the province in Indonesia with HDI (2012) ranked 14th out of 33 provinces, but it does not indicate the condition of all areas evenly. This research, focuses on fiscal decentralization, aims to analyze the impact of government spending on human capital; the impact of government spending and human capital on the performance of regional economic development; and the impact of government spending, human capital and regional economic development performance toward the welfare of the people in the province of Bali. The data were analyzed by using PLS, and the processed data are the data panel of nine districts / municipalities in Bali Province for 12 years since the decentralization. The results show that government spending, human capital, and the performance of regional economic development, both directly and indirectly have  positive and significant impact on the welfare of the community. Given the importance of the mediating role of human capital, the government is advised to focus government spending on areas directly related to efforts to improve human capital.

Keywords: government expenditure, human capital, regional economic development performance, people welfare