Budget Absorption and Human Development: Evidence from Indonesian Provinces
Keywords:
Budget Absorption, Capital Expenditure Structure, Fiscal Independence, Human Development Index, Fixed Effects, IndonesiaAbstract
This study examines the associations between budget absorption, capital expenditure structure, fiscal independence, and human development outcomes in Indonesian provinces, including the potential moderating role of fiscal independence. Drawing on Agency Theory and New Public Management, the study employs panel data from 34 provinces during 2022–2024, comprising 102 province-year observations. Province fixed-effects models with province-clustered robust standard errors are estimated, supplemented by specifications incorporating year fixed effects, alternative sample restrictions, and lagged fiscal variables. The baseline model identifies a negative and statistically significant association between budget absorption and the Human Development Index (β = −0.0528, p < 0.001). However, the coefficient becomes statistically insignificant after including year fixed effects (β = 0.0002, p = 0.954), indicating substantial sensitivity to common temporal influences. Capital expenditure structure and fiscal independence are not statistically significant at the 5% level in the baseline model. The interaction between budget absorption and fiscal independence is also statistically insignificant (β = 0.1244, p = 0.163), providing insufficient evidence of moderation. Additional sensitivity analyses further qualify the negative baseline association. The findings underscore the distinction between administrative budget execution and substantive development outcomes and suggest that absorption rates should be considered alongside expenditure quality and outcome-oriented performance indicators. Given the short panel and potential endogeneity, the estimates are interpreted as conditional associations rather than causal effects.
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