Analysis of The Causality Between Regional Capital Expenditure and Local Own-Source Revenue in Maluku Province

Government initiatives to improve public services are critically necessary by taking into account the region’s entire potential. The regional government employs infrastructure development for public services by allocating funds in the form Regional Government Budget (Anggaran Pendapatan dan Belanja Daerah (APBD)) from the regional capital expenditure budgets. The infrastructure development allows the regional government to collect levies and taxes on to boost the Local Own-Source Revenue (Pendapatan Asli Daerah (PAD)). This study aims to investigate the causality between regional capital expenditure and Local Own-Source Revenue in 11 regencies / cities in Maluku province for a 10-year period (2011-2020). A quantitative method using a Granger causality approach was employed. The data was collected using a purposive sampling method from the Statistics Indonesia of Maluku Province. The results show that there is a unidirectional relationship between the Local Own-Source Revenue and regional capital expenditure. However, there is no causality between the regional capital expenditure and Local Own-Source Revenue. The ability of regional government to optimize regional sources of income through the availability of economic potential reduces the regional governments’ financial dependency on the national government.