Flypaper Effect of Own-Source Revenue and General Allocation Fund on Capital Expenditure in West Sumatera

Abstract

This study analyzes the effect of Own-Source Revenue (PAD) and General Allocation Fund (DAU) on Capital Expenditure, and examines the Flypaper Effect phenomenon in districts/cities of West Sumatra Province during 2020–2024. Using a quantitative associative approach with panel data regression, the study covers 19 districts/cities (95 observations). Secondary data were obtained from BPS and DJPK. Model selection through Chow, Hausman, and Lagrange Multiplier tests confirmed the Random Effects Model (REM) as the best estimator. Results show that: (1) PAD and DAU simultaneously have a significant effect on Capital Expenditure; (2) PAD partially has no significant effect; (3) DAU has a positive and significant effect; and (4) the Flypaper Effect is confirmed, as the DAU coefficient (1.073457) exceeds the PAD coefficient (0.003460) with PAD being insignificant. The model explains 52.34% of Capital Expenditure variation (Adjusted R² = 0.5234). These findings indicate that capital expenditures respond more to central government transfers than to Own-Source Revenue, reflecting strong fiscal dependence that is not yet aligned with fiscal decentralization goals. Local governments need to intensify tax collection, regional levies, and asset management to achieve sustainable fiscal self-reliance.