Taxes, revenues and capital expenditure as determinants of financial sufficiency of regional government

Abstract

Purpose: This study aims to investigate the influence of regional taxes and other legitimate regional revenues for regional financial sufficiency in Indonesia. Design/methodology/approach: The research data was involved a sample of 27 districts/cities in Central Java, Indonesia. The sampling methodology used in this study is a purposive method. The hypothesis testind is based on Structural Equation Modeling through path analysis with the AMOS V. 22. Findings: Regional taxes directly have a significant and positive effect on regional sufficiency, while other regional revenues directly influence significantly but negatively regional sufficiency. Special allocation of funds do not directly affect regional sufficiency. Indirect effect by using analysis on mediating effect of capital expenditure revealed that taxes, revenues, and special allocation funds revealed that capital expenditure is not able to have significant effect on the relationship between taxes, revenues, and funds to financial sufficiency. Practical implications: The findings imply to local governments to further increase the utilization of existing resources in order to increase revenues which in turn, can increase the level of regional financial sufficiency. Originality/value: The study originally examines the effect of special allocation funds with the realization of capital expenditure as a mediator.