Analysis Of The Effect Of Regional Financial Performance To Economic Growth and Poverty Through Capital Expenditure (Case study of 38 Regencies/Cities in East Java Province)

Abstract

This research was conducted to empirically prove the effect of financial performance measured from the ratio ofexpense to income, fiscal efforts, financing capability, and the level of fiscal decentralization degree towards anumber of variables, which are: (1) capital expenditure, (2) economic growth and poverty, (3) economic growthand poverty through capital expenditure, and (4) poverty through capital expenditure and economic growth.This research was performed using path analysis method. The samples of this research are 38 districts/cites inEast Java Province during the last 7 years (2005-2011).The result of this research shows that the financial performance measured from financing capability showsinsignificant direct effect towards capital expenditure and economic growth while the effect to poverty showspositive significant effect. Furthermore, from the effects of indirect financial performance through capitalexpenditure, there are variables of expenditure to income ratio, fiscal efforts, and degree of fiscaldecentralization variables which have significant indirect effects towards the economic growth (in a positive way)and poverty (in a negative way) while for the financial performance effects through capital expenditure andeconomic growth to poverty have significant indirect and negative influence, particularly those are measuredusing expense to income ratio, fiscal efforts, and the level of fiscal decentralization. Finally, in order to betterfinancial performance in particular it is necessary to optimize the financing capabilities in terms of both revenueand expenditure, in terms of revenue optimization of PAD, Silpa, and loan, while expenditure optimizers need toconduct a review of expenditure that has been done.

Keywords: financial performance, expense to income ratio, fiscal effort, financing capability, the level of fiscaldecentralization, capital expenditure, economic growth, poverty