e-ISSN: 2723-6692 🕮 p-ISSN: 2723-6595
Indonesian Journal of Social Sciences, Vol. 5, No. 12, December 2024 3135
highlighted the vulnerability of regions with limited financial independence. Financial
decentralization has emerged as an important strategy to empower local governments, allowing them
to manage resources effectively and support regional development (Halim, 2007). However,
achieving this autonomy is not easy because many factors affect its success.
There are several factors that contribute to the ongoing challenges in achieving regional
financial independence in Indonesia. One of the main factors is the low optimization of Regional
Original Revenue (PAD), which limits the fiscal capacity of local governments. These limitations force
regions to rely heavily on transfers from the central government, such as the General Allocation Fund
(DAU) and the Special Allocation Fund (DAK), which often undermine the expected autonomy of
decentralization policies (Mukaromah & Budhi, 2024; Salampessy, 2011; Zulkifli et al., 2024). In
addition, inefficient allocation of capital expenditure has a negative impact on infrastructure
development, which is a major driver of economic activity and growth (Wong, 2004). The economic
gap between regions, arising from uneven fiscal readiness, further complicates efforts to achieve fiscal
independence because some regions have difficulty managing resources effectively (Adi, 2005).
These factors have a variety of impacts that highlight the importance of systematically
addressing these issues. First, the economic gap between regions remains a significant problem, with
less developed regions having difficulty catching up with more developed regions. This inequality
limits the country's overall growth potential. In addition, excessive reliance on central funding
mechanisms reduces local government accountability and innovation, making it difficult for them to
respond effectively to community needs. The inability to optimize capital expenditure further limits
infrastructure development, which is crucial for improving public services and boosting economic
activity. As a result, regional economic growth often does not reach the national target, as seen in the
data on fluctuations in North Sulawesi's Gross Regional Domestic Product (GDP) (BPS, 2024).
This study focuses on the core variables that shape regional financial independence: PAD, DAU,
DAK, and capital expenditure. Each variable has a different role in the fiscal and economic dynamics
of a region. PAD reflects the intrinsic fiscal strength of an area, which comes from local resources such
as taxes and levies. DAU and DAK, on the other hand, are central transfers aimed at closing fiscal gaps
and funding specific development priorities. Meanwhile, capital expenditure reflects investment in
long-term assets and infrastructure that are essential for sustainable economic growth (Putra &
Usman, 2024; Setiawan et al., 2021). The relationship between these variables significantly
determines the fiscal resilience and autonomy of a region, especially in its ability to face economic
challenges and opportunities.
This research makes a new contribution to the understanding of fiscal decentralization and
regional financial independence. This study uses the latest economic data from 2011 to 2023, thus
providing contemporary insights into the interactions between the variables studied. The use of path
analysis allows for an in-depth examination of the direct and indirect effects of fiscal variables on
financial independence and economic growth. In addition, by focusing on North Sulawesi—a region
that has received less attention in the existing literature—this research aims to fill a critical gap in
understanding the unique challenges and opportunities of fiscal decentralization in Indonesia.
The urgency of this research lies in its potential to provide guidance to policymakers in
optimizing fiscal strategies to achieve regional financial independence. As North Sulawesi continues