Government Financial Management Review: The Impact of Government Spending and Budget Surplus (SiLPA) on Regional Development

Research Originality — This study examines Indonesian government spending—both state and local budgets—at a disaggregated level, with particular attention to the role of the Budget Surplus (SiLPA). By doing so, it provides a clearer picture of how specific fiscal policies and excess budget financing shape regional economic growth. Research Objectives — The primary aim of this study is to explore how different types of government spending, along with excess budget financing (SILPA), affect regional economic performance in Indonesia. It also seeks to identify which fiscal components contribute most effectively to growth and where potential inefficiencies lie. Research Methods — This study applied Principal Component Analysis (PCA) to nine fiscal variables from 2020 to 2024 across 34 provinces, reducing them to two principal components that together explained more than 91% of the total variance. These components were then analyzed using panel data regression, with the Between OLS model identified as the best fit. The model’s reliability was further validated through a series of statistical tests. Empirical Results — The results indicate that the first principal component (PC1) exerts a significant positive influence on GRDP, whereas the second principal component (PC2) has a negative effect. This implies that although government spending overall tends to stimulate economic growth, inefficiencies—especially within central government expenditures—can offset and weaken these benefits. Implications — The findings underscore the importance of enhancing efficiency and strengthening coordination in government spending. They suggest that policymakers should focus on improving the effectiveness of central government expenditures within the regional context and on strategically channeling SILPA into productive projects. Such measures can stimulate local economies and support the development of more effective, well-targeted fiscal policies.