The Role of Regional Government Expenditure in Economic Growth, with Fiscal Autonomy as a Moderating Variable: A Study of Regencies/Cities in Southeast Sulawesi (2019–2023)

Abstract

Fiscal decentralization grants regional governments the authority to manage finances to promote development and economic growth. However, the effectiveness of regional spending in increasing economic growth is thought to be related to the capacity for fiscal independence. This study aims to analyze the influence of regional spending on economic growth and examine the role of fiscal independence as a moderating variable in 17 districts/cities in Southeast Sulawesi Province during the 2019–2023 period. The study used a quantitative approach with panel data of 85 observations. The analysis was conducted using panel data regression with the Fixed Effect Model (FEM) and Moderated Regression Analysis (MRA). The results show that regional spending has a positive and significant effect on economic growth. Conversely, fiscal independence has a positive but insignificant effect. Furthermore, fiscal independence has not been shown to moderate the effect of regional spending on economic growth. These findings indicate that increasing regional spending plays a role in driving economic growth, but the capacity for fiscal independence has not been able to strengthen this relationship. Therefore, regional governments need to optimize spending allocations in productive sectors, increase Regional Original Income (PAD), and strengthen the effectiveness and quality of regional financial governance.