International Journal of Innovation, Creativity and Change. www.ijicc.

net
Volume 12, Issue 10, 2020

The Impact of Special Autonomy

Funds on Poverty of Human
Development and Unemployment in
Aceh
Muhammad Abrara, Bambang Juandab, Muhammad Firdausc, Dedi
Budiman Hakimd, aEconomic and Business Faculty, Universitas Syiah Kuala.
Banda Aceh, Indonesia, b,c,dRegional and Rural Development Planning Study
Program, Institut Pertanian Bogor, Indonesia, Email:
a*
[email protected]

Aceh Province has been granted a Special Autonomy Fund (DOK) as

additional funding for development financing. This paper aims to
analyse the impact of the special autonomy fund and other transfer
funds, including Local Own Revenue (PAD), through capital
expenditure as well as goods and services expenditure on poverty,
Human Development Index (HDI), and unemployment. This study uses
panel data from 23 districts/cities in Aceh Province from 2000–2016
and Fixed Effect Model (FEM) analysis. The results show that prior to
the special autonomy fund allocated, the Special Allocation Fund
(DAK), the General Allocation Fund (DAU), and own-source revenue
(PAD) had significant influences on poverty and HDI through capital
expenditure. However, only DAU had a significant impact through
goods and services expenditure. On the other hand, after the special
autonomy fund was granted, only DAK had a significant influence on
poverty and HDI through capital expenditure. Meanwhile, DAK, DAU,
and PAD had significant impacts through goods and services
expenditure. The results indicate that the DOK fund still has not had a
significant effect on poverty, unemployment reduction and HDI
improvement, either through capital expenditure or through goods and
services expenditure.

Key words: Human Development Index, Poverty, Special autonomy fund,

Unemployment.

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Introduction

Fiscal decentralisation policies were carried out by many developing countries in the 1970s.
The implementation of fiscal decentralisation policies in Indonesia has been extensively carried
out since 2004, as regulated in Law Number 32 of 2004. It was revised through Law No. 23 of
2014 concerning regional autonomy. The law applies to all local governments in Indonesia. In
addition, there are also special autonomy laws for regions that have special rights, one of which
is the Special Autonomy Law No. 11 of 2006 concerning the Government of Aceh. The law
provides a specificity for Aceh and specificity for the government. It is described in article 179,
paragraph (1), which states that the Government of Aceh and regencies/cities have sources of
regional income. One of these is sourced from the special autonomy fund (DOK). Special
autonomy is a special authority that is recognised and given to a province to regulate and take
care of the interests of local communities according to their own initiatives based on
community aspirations.

DOK is the receipt of Aceh Province transfers from the central government. Part of the funding
is used to finance district/city development programs. During the DOK implementation of the
Aceh provincial government from 2008 to 2016, Aceh received a DOK of Rp 48.96 trillion or
an average increase in revenue of 11 percent per year (Figure 1). The total regional income of
Aceh Province in the same period amounted to Rp 107.33 trillion. The ratio of DOK to APBD
is an average of 35.24 percent, meaning that DOK is the main source of revenue for Aceh's
development. According to the Ministry of Home Affairs (2018), Aceh Province has the fifth
largest regional income after DKI Jakarta, West Java, East Java and Central Java. This provides
a golden opportunity for Aceh to spur development in the future.

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PAGU DEFINITIF OTSUS ACEH TAHUN 2008-2015 DAN PROYEKSI PAGU
Figure 1
TAHUN 2016-2027
DOK’s definitive ceiling from 2008-2016 and projected ceiling for 2016-2027
14.00
special autonomy fund (Triliun Rupiah)

12.10
12.00
11.20

10.37

10.00 9.60

8.89 Angka proyeksi

8.23 8.23
8.00 7,70 7.62
7.06 7.05
6.82
6.53
6.22
6.05
6.00 5.48

4.51

3.73 3.85
4.00 3.59

2.00

0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027
Source: Aceh Provincial Finance Office 2017 Tahun

Basically, the management of DOK in Aceh must be able to be a trigger for the problem of
community welfare. In terms of revenue and financial management, Aceh receives a substantial
additional fund. This is true in the case of Aceh's equalisation fund, which obtains revenue-
sharing funds in addition to oil and gas revenue-sharing funds under the provisions of the part
of oil mining by 55 percent, and the part of natural gas mining by 40 percent. The funds are
then allocated to finance education in Aceh (at least 30 percent). A maximum of 70 percent is
allocated to finance development programs that are mutually agreed upon between the
Government of Aceh and the district/city government. In addition to revenue-sharing funds,
the province of Aceh also has DOK.

DOK is allocated to finance six main areas and Aceh's special features. Some key areas, such
as infrastructure and education, get a sizable allocation compared to other sectors. The
infrastructure sector received the largest allocation since 2008, accounting for Rp 13.7 trillion
until 2016. Infrastructure allocations recorded an average of 36 percent annually, reflecting
Aceh's development priorities in addition to education. Both of these sectors had a portion of
50 percent of the overall DOK allocation in 2016. The economic sector and poverty alleviation
accounted for 34 percent of the total allocation. This is ironic, since a large amount of the
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Volume 12, Issue 10, 2020

budget has not been accompanied by significant improvements in development performance,

such as poverty, HDI and unemployment. The fact is that for almost a decade after the
implementation of SAF in Aceh, poverty remains a major problem. The poverty rate in Aceh
in 2016 was 17.08 percent. This figure is far above the national poverty level and is the second
worst on the island of Sumatra after Bengkulu Province (BPS 2016). The unemployment rate
in 2015 was 9.93 percent and HDI 69.45. The performance of unemployment and HDI is still
below the national average. In the same year, the unemployment rate was 6.18 percent and the
HDI achievement was 69.55.

Various studies show that there is no real relationship between the impact of fiscal
decentralisation and economic development (which shows a negative relationship and shows a
positive relationship). The results of research by Xie et al (1999), Sepulveda and Martinez
(2011), Putra (2014), Adefeso (2015), Zulham et al. (2015), Murdiansyah and Ikhsan (2016),
and Nurlina et al (2019) show that negative impacts are shown among others. Research by
Lessman (2006), Martinez and Yao (2009), Freinkman and Plekhanov (2010), Sepulveda and
Martinez (2011), Faridi (2011), Badruddin (2011), Faridi et 2011 Al (2012), Philip and Isah
(2012), Amagoh and Amin (2012), and Soejoto et al (2015) analyses the impact of
decentralisation on economic growth, showing positive impacts.

Previous research conducted in several studies has shown the impact of fiscal decentralisation
through special autonomy policies on economic growth. This includes research by Putra
(2014), Zulham et al. (2015), and Murdiansyah and Ikhsan (2016). They analysed the direct
effects of special autonomy on economic growth. This study tries to explore this in more detail
by further looking at the impact of SAF on economic development in Aceh Province. This
includes dimensions of human development, poverty and unemployment through variable
mediation of capital expenditure and goods and services expenditure, and the use of the GRDP
variable with constant prices in 2000 as an indicator of economic growth. Specifically, it also
looks at the impact of the central government’s budget in the form of deconcentrated funds and
regional development spending in Aceh Province to see more effective use of the budget. The
selection of the use of the DOK budget is the focus because this particular DOK has a strategic
position in the economy to reduce poverty. This is the goal of regional autonomy carried out
by the central government to improve people's welfare. Based on the phenomena above, this
study focuses on the impact of SAF on poverty, HDI, and unemployment in Aceh Province.

Literature Review

The Impact of Decentralisation

Faridhi (2011) indicates that the impact of the decentralisation of expenditure and revenue is
part of improving public sector efficiency, cutting budget deficits and reducing poverty,
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creating jobs, and encouraging human development. The impact of decentralisation will
increase economic efficiency because local governments will provide public services according
to community needs (Habbe et al., 2019). Over the course of time, this efficiency will lead to
the creation of jobs and an increase in regional HDI acceleration. Finding fiscal decentralisation
significantly drives human development and creates short-term and long-term regional
employment. Furthermore, Philip and Isah (2012) found the same thing with Faridhi: Fiscal
decentralisation significantly boosts employment opportunities and increases regional short-
term and long-term HDI. Kalirajan and Otsuka’s (2012) research in the State of India found
decentralisation increased education and health sector spending so as to increase human
development. This research was conducted from 1980 until 2006 using the OLS method. The
results of their analysis found a positive impact of fiscal decentralisation on Indian
macroeconomic stability. The study also shows that in India, income decentralisation is more
effective than decentralised spending, and it is recommended to increase economic
development, reduce unemployment, and increase long-term human development through
fiscal decentralisation.

Special Autonomy

According to Freinkman and Plekhanov, (2010) special autonomy is very beneficial for human
development, encouraging the quality of human education, reducing unemployment, and
regional economic development. With regional autonomy, a region can regulate the economy
in accordance with the wishes of the local community. Furthermore, Freinkman said that
regional autonomy also gives greater responsibility and authority to regional authorities in
regulating or managing the activities of a region. Golem (2010) argues that with fiscal
decentralisation, a regional government will be closer and more responsive to the local
community. As a result, it will be better suited to what is expected by the community (to be
desired by the government). Bartolucci et al. (2015) said that fiscal decentralisation greatly
affects local communities. Firstly, decentralisation increases accountability in the process of
providing local government services that are closer than those of the central government. Local
governments are assumed to be subject to electoral pressure from local citizens. Secondly, local
government authorities are closer to their constituents because they have better access to local
information. This allows local governments to provide goods and services that are more
suitable or in accordance with the wishes of the local community. This has an impact on job
creation, human development and reduction of poverty.
Method

This research was conducted in Aceh Province using district/city panel data for 2000-2016.
The variables used are capital expenditure, capital expenditure and spending, and services in
mediating the relationship between DOK, PAD, DAU, DAK, and DBH, poverty, HDI, and
unemployment. Analysis of the effect on development performance in Aceh Province was also
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carried out by lagging (t-1) one year and (t-2) two years for the variable of capital expenditure
and economic growth (PDRBK). This is based on the problem of suboptimal absorption of the
budget. What happens is absorption that is always low at the beginning of the year finally
accumulates at the end of the year. The condition of budget absorption in Indonesia is termed
by the World Bank as a slowdown in the work process. This can slow from the beginning of
the year to the middle of the budget year but can increase sharply in the final year of
implementation (slow back-loaded) (BPKP, 2011). In addition, government projects also
sometimes exceed a period of one fiscal year, so the impact on poverty occurs over one or two
years.

According to Haryanto, (2015) the delay in the realisation of capital is still a classic problem
that repeats every year. In theory it can be explained that capital expenditure is the main
reflection in determining quality spending in terms of explaining the effect of investment on
regional development and national development. Therefore, the realisation of the special
autonomy fund, DAK, DAU, DBH, and PAD through capital expenditure on poverty will only
reveal its effect on poverty in the following year. The time lag or time gap between the
measurement of the dependent variable in relation to the independent variable and the
intermediate variable needs to be adjusted to the research model.

The analysis technique used was Ordinary Least Square (OLS) with a Fixed Effect Model
(FEM) model that was processed using Eviews 9 software. The regression model in this study
refers to the model developed by Juanda et al (2017), Sobari (2011), Muda et al (2018 & 2019).
In this model, natural logarithmic (LN) transformation is used in both independent and
dependent variables to facilitate the interpretation of the model. Transformation also
significantly reduces the difference between large-value observations and small values. This
make the data normally distributed. The regression model is as follows:

I. A Model of the influence of the independent variable through the variable capital expenditure
and expenditure of goods and services.
a. A Model of the effect of funds transfers on the capital expenditure variable

LNBMit = b0 + b1LNDAKit + b1LNDAUit + b3LNPADit + b4DBHit + b5LNOTSUSit + DOK

+ b6LNDAKit * DOK + b7LNDAUit * DOK + b8LNPADit * DOK + b9LNDBHit *
DOK + b10LNDBHit * DOK + eit (1)
b. The model of the influence of funds transfers on the variable of shopping goods and services.

LNBBJit = b0 + b1LNDAKit + b1LNDAUit + b3LNPADit + b4DBHit + b5LNOTSUSit + DOK

+ b6LNDAKit * DOK + b7LNDAUit * DOK + b8LNPADit * DOK + b9DBHit *
DOK + b10LNDBHit * DOK + eit (2)

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II. Model of the influence of capital expenditure and goods and services expenditure on
poverty, HDI and unemployment.

a. POVit = b0 + b1LNBMit-1 + b2LNBBJit + b3LNPDRBKit-1 + b4DOK + b5LNBMit-1 +

DOK+b6LNBBJit*DOK+b7LNPDRBKit-1*DOK+eit (3)
b. LNIPMit = b0 + b1LNBMit + b2LNBBJit + b3LNPDRBKit + b4DOK + b5LNBMit + DOK
+b6LNBBJit*DOK+b7LNPDRBKit*DOK+eit (4)
c. TPTit = b0 + b1LNBMit + b2LNBBJit + b3LNPDRBKit + b4DOK + b5LNBMit + DOK +
b6LNBBJit*DOK+b7LNPDRBKit*DOK+eit (5)

The operational definitions of variables and measurements are as follows:

= Human Development Index (HDI/IPM) is comparative measurement of life expectancy,
literacy, education and living standards for all countries throughout the world in Indonesia
(Certain Score).
= Special Autonomy Fund (DOK) s the funds allocated to finance the implementation of a
region's special autonomy in Indonesia (Million Rupiah).
= Special Allocation Fund (DAK) is the fund allocation from the State Budget to certain
provinces/districts/cities with the aim of funding special activities which are the affairs of
the Regional Government and in accordance with national priorities.in Indonesia (Million
Rupiah).
= General Allocation Fund (DAU) is the fund allocation from the State Budget to certain
provinces/districts/cities with the aim of funding special activities which are the affairs of
the Regional Government and in accordance with national priorities.in Indonesia (Million
Rupiah).
= Local Own Revenue (PAD) is revenue from sources within the territory of a certain region,
which is levied according to applicable Laws in Indonesia (Muda and Hutapea, 2018)
(Million Rupiah).
= Revenue Sharing Fund (DBH) is funds sourced from State Budget that are allocated to
regions based on certain percentage figures to fund regional needs in the context of
decentralization (Muda et al., 2014). (Million Rupiah).
= Special Autonomy (OTSUS) is special authority recognized and given to the Provinces of
Aceh and Papua.
= Capital Expenditure (BM) is budget expenditures for the acquisition of fixed assets and other
assets that provide benefits over one accounting period in Million Rupiah (Muda and
Naibaho, 2018).
= Open Unemployment Rate (TPT) is percentage of unemployment to total labor force.
= Shop for Goods and Services (BBJ) is Expenditures to accommodate the purchase of
consumable goods and / or services to produce goods and / or services that are marketed or
not marketed.

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= Goods and Services Expenditure (GRDP) is procurement of goods intended to be delivered

or sold to the community/Regional Government.
= Product Domestic Regional Bruto (PDRB) is the total gross value added arising from all
economic sectors in the area in Trillions Rupiah.
= The regency/city special autonomy fund for the 1st year (Million Rupiah).
= The i-t regency (city) special allocation fund for the t-year (Million Rupiah).
= The i-t district/city general allocation fund (t. Million Rupiah).
= The regency/city revenue sharing i-t year (Million Rupiah)
= The 1st year original regency/city revenue of the year (Million Rupiah).
= District/city capital expenditure for year i (Million Rupiah).
= District/city expenditure of goods and services for year i (Million Rupiah).
= Natural logarithm (LN) of regency/city PDRB in the t-year (Million Rupiah).
= Regency/city poor population/poverty (POV) i-th year (percent).
= Regency/city Human Development Index i year t.
= Percentage of district/city open unemployment i-t year (percent).
= Percentage of labour force employed by the district/city in the first year (percent).
= Formation of regency/city gross fixed capital i year t (Million Rupiah).
D = Special Autonomy Dummy, D = 0 (for 2000-2007) and D = 1 (for 2008-2016)
= Lag the previous year

The independent variables in this study are DOK, DAU, DAK, DBH, and PAD. The dependent
variables are poverty, HDI and unemployment while the intermediate variables used are capital
expenditure and expenditure on goods and services. Analysis of the data used the Eviews 9.0
program. The research framework, the income block consisting of DOK, DAK, DAU, DBH
and PAD will influence the expenditure block (capital expenditure and goods and services
expenditure). Furthermore, capital expenditure and spending on goods and services will have
an effect on poverty, HDI and unemployment.
Results and Discussion

Results

Several researchers have previously conducted research on the effects of fiscal denaturalisation
on economic development. Research shows a negative and unreal relationship between fiscal
decentralisation and poverty and HDI and unemployment. Among others, Xie et al (1999)
examined fiscal decentralisation with economic development. According to research conducted
in many countries, developing countries have a negative relationship and developed countries
do not have a real relationship between fiscal decentralisation and economic development.

The results that show a negative relationship are also the same as the results of research by
Adefeso (2015), who examined African countries using panel data. In a sample of 5 countries
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from 2009-2014, the results obtained showed the negative effects of decentralisation of
autonomy. This implies that the spread of the extent of corruption in Africa weakens the impact
of fiscal decentralisation development for present and future generations in Africa. This is due
to corruption in the decentralisation expenditure component. Nevertheless, it also results in the
positive effects of decentralisation (that regional autonomy can enhance African economic
development).

Furthermore, research that shows a positive relationship between the impact of fiscal
decentralisation and human development, among others, includes research conducted by
Lessman (2006). It shows that poor countries are less able to compete in terms of fiscal
mobilisation compared to rich countries. Therefore, if not assisted, poor countries will remain
poor. Lessman, in his research, proved the impact of fiscal decentralisation on regional
disparity using panel data for 17 developing countries from 1980-2001. The results show that
high levels of fiscal decentralisation show lower regional differences. This is in line with the
results of a study by Sepulveda et al (2011), which conclude that the policy of fiscal
decentralisation autonomy significantly reduces poverty, increases human development and
reduces unemployment.

Freinkman and Plekhanov (2010) examined 73 regions in Russia, concluding that regional
autonomy can increase education spending so that it can improve the quality of education,
improve HDI and create employment. Faridi et al (2012) examined the State of Pakistan,
concluding fiscal decentralisation through autonomy policies can encourage employment
opportunities. Martinez and Yao (2009) examined vulnerable developing countries from 1985
to 2005, concluding fiscal decentralisation increased economic development, encouraged
employment opportunities, and reduced the poor population. The results of this study are the
same as Faridi’s (2011), which used a sample of provinces in Pakistan from 1972-2009. They
found that indicators of fiscal decentralisation, such as expenditure and income autonomy, have
a significant positive effect on economic growth. They recommended the federal government
to delegate fiscal policy to the provincial governments and districts to promote the growth and
prosperity of the people of Pakistan and reduce poverty. This is also in line with research by
Chu and Yang (2012). They found that fiscal decentralisation in China can increase economic
growth and improve people's welfare.

The same research results were also examined by Badruddin (2011), who concluded that fiscal
decentralisation in Central Java did not show a significant effect on capital expenditure.
However, fiscal decentralisation could significantly influence economic growth and improve
the welfare of the people in Central Java.

Murdiansyah and Ikhsan (2016) stated that of the five independent variables, only two
variables, namely PAD and DBH, had a significant influence on economic growth. The effect
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of economic growth on the dependent variable is significant for all variables. This means that
if the regression results show that economic growth rises, then unemployment and poverty also
increase. This opposes the theory indicating if the economy grows, unemployment and poverty
will decrease. This is different from the research of Zulham et al (2015). It states that before
otsus, the exogenous variable that had a positive and significant influence on the conditional
convergence of regional economic growth in Aceh was regional income, while the negative
and significant correlation was the balancing fund variable. In other words, the balance funds
received by Aceh have not been able to increase economic growth, creating regional economic
employment in Aceh.

Targeted governance will be a key requirement in maximising the use of SAF. As required by
law, the program of activities funded by the SARET must have a significant, measurable, and
beneficial impact on the community and have a driving force that has a long-term impact on
Aceh's development. Systems, mechanisms, planning, implementation and supervision as well
as periodic evaluations must be developed as a necessity (Yahya et al., 2018). The master plan
regarding the use of SAF and various regulations and technical guidelines in the management
of SAF (which is a reference), must continue to be refined to ensure the effectiveness of
development.

The DOK allocation is intended to finance the acceleration of development in Aceh. The people
of Aceh also consider that the administration and implementation of development in Aceh has
not been able to fully realise the people's welfare, justice, fulfillment, and protection of human
rights. These considerations imply that the receipt of the DOK by Aceh is so the special
development needs of Aceh can be met, especially the problems of poverty, HDI and
unemployment rates.

As time passes after DOK acceptance, there are several indicators of development targets:
economic growth, poverty, unemployment and inflation. The unemployment indicator data
shows that before the DOK in 2006, the unemployment rate in Aceh Province was 14 percent.
Then the unemployment rate showed a decrease in 2008 to 9.56 percent at the beginning of the
DOK. This was also the case in 2010; the percentage of unemployment in Aceh Pronsi
decreased to 8.37 percent and continued to show a decline in 2016 to 6.8 percent. In general,
the inflation indicator also shows a declining trend; in 2006 inflation in Aceh reached 9.98
percent. However, at the beginning of the DOK in 2008, the inflation rate increased to 11.92
percent. Over time (i.e. after the DOK had been running for two years in 2010), the inflation
rate continued to decline to 5.86 percent. In 2012, the inflation rate continued to show a decline
to 3.4 percent. However, in 2013, the inflation rate showed an increase to 7.8 percent. In 2014,
it also continued to increase to 8.9 percent. However, in 2016 (with the DOK), the inflation
rate also continued to decline until 2016 to 5 percent.

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Figure 2
Macro achievement indicators and development targets for Aceh Province from 2005-2017
1. Law No. 11 concerning 3. Qanun No 2 of 2013
Before special 2. Qanun No. 2 of 2008
the Government of Aceh
autonomy

90
40 Inflation
80
Poverty
35
Unemployment
30 70

25 60 60%
Regency/ 40% 40%
20 50 Cities Regency/Citie 60%
Province s Province
15 40

10 30

5 20

0
10 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

0 Pertumbuhan EkonomiPlanning
Aceh Provincial Development KemiskinanAgency
Pengangguran Inflasi
Source:
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

DOK is intended to finance development programs and

CAPAIAN/TAHUN (%) activities that are strategic andTARGET have
(%) a
INDIKATOR KINERJA
strong driving force in achieving community welfare. The use of SAF, as mandated in the law
and qanun to finance 2005 the 2006 seven
2007 development
2008 2009 sectors,
2010 2011 2012 infrastructure,
involves 2013 2014 2015 2016 2017
the economy,
poverty,
1. PERTUMBUHANeducation,
EKONOMI 1,76 health,
1,22 social1,88issues
7,23 3,97 and5,91 the 4,38 implementation
4,95 4,40 of
4,13 Aceh4,34 privileges.
6,90 7,50
Appropriate development financing for the entire sector is expected to be a strong impetus for
2. TINGKAT KEMISKINAN 28,69 28,28 26,65 23,53 21,8
Aceh to spur development. Some key areas, such20,98as infrastructure
19,48 18,58 17,72
and 16,98
education, 17,11
get11,50 9,50
a sizable
allocation
3. PENGANGGURANcompared 14,00 to 12,08
other sectors.
9,84 9,56The 8,71
infrastructure
8,37 7,43 sector
9,10 received
10,3 the
9,02 largest
9,93 allocation
6,80 6,50
since 2008, accounting for Rp. 13.7 trillion until 2015. Infrastructure allocations are recorded
4. INFLASI 34,88 9,98 9,41 11,92 3,72 5,86 3,43 3,40 7,31 8,09 1,53 5,00 5,00
at an average of 36 percent annually, reflecting Aceh's development priorities in addition to
education. Both of these sectors had a portion of 50 percent of the overall DOK allocation in
2015. The economic sector and economic alleviation accounted for 34 percent of the total
allocation. Regression estimation results show each of the effects of DOK and other transfers
on the variables of poverty, HDI and unemployment through capital expenditure and goods
and services expenditure. The influence is as follows:

1. Effects of DOK, DAK, DAU, DBH, and PAD on capital expenditure and goods and
services expenditure:

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Table 1
The effects of funds transfers on capital expenditure and expenditure on goods and services
before DOK
Dependent Variable
Independent Variable
LN_BM P_Value LN_BBJ P_Value
Constanta 4.134 0.0003 8.523 0.0000
LN_DAK 0.194 0.0000 0.024 0.2531
LN_DAU 0.332 0.0078 0.167 0.0111
LN_DBH 0.073 0.1154 0.023 0.3166
LN_PAD 0.073 0.0000 0.003 0.6741
Observations 391 391
R-squared 0.793 0.875
Source: Processed Data (2018).

In determining the model used, a model selection test was carried out using the Chow test and
the Hausman test. The Chow test can determine whether the model chosen pooled a least square
model or fixed effect model. A rejected H0 means the value of probability for F is smaller than
Alpha (0.05). Hence, it can be concluded that the model used is the fixed effect model. The
first test can determine whether the model chosen is a random effect model or fixed effect
model. A rejected H0 means the value of probability for F is smaller than Alpha (0.05). Hence,
it can be concluded that the model used is the fixed effect model. The research model that uses
the fixed effect model can be explained through the equation before the presence of DOK as
follows (Table 1):

Equation effect of funds transfers on capital expenditure before special autonomy funds:
LN_BMit = 4.134 +0.194 LN_DAKit+0.332LN_DAUit+ 0.073 LN_DBHit + 0.073 LN_PADit
+eit (6)
The equation of the effect of funds transfers by spending on goods and services before the
special autonomy fund:
LN_BBJit = 8.523 + 0.024 LN_DAKit + 0.167LN_DAUit +0.023LN_DBHit+0.003 LN_PADit
+eit (7)
Based on Table 1, it can be explained that the DAK, DAU and PAD variables significantly
influence capital expenditure, while the highest elasticity is DAU of 0.332 percent. This means
that if DAU funds increase by 1 percent, then capital expenditure will increase by 0.332 percent
(ceteri paribus). Based on the value of R2 (0.79), it can be seen that the above model can explain
the diversity of capital expenditure variables by 79 percent. For the allocation of goods and
services expenditure, the most influential is the DAU variable only. The other variables do not
have a significant effect on the coefficient of determination by 0.011 percent.

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Figure 3
The direct schematic effect of DAK, DAU, DBH and PAD on capital expenditure and goods
and services expenditure before DOK

BLOCK 0.194
Pv=0.000
R2 =0.793263
DAK
0.024 0.332 Capital
Pv= 0.253 Pv=0.008
R2 =0.793263
Expenditure
R2. = 0.875

0.073
DAU Pv=0.115
0.167
Pv=0.011 R2 =0.793263
2.
R = 0.875
0.073**)
Pv=0.000
DBH R2 =0.793263
0.023
Pv=0.317
R2. = 0.875

PAD Good and

0.003
P.v =0.674 Services
2.
R = 0.875
Budget

Research models that use the Fixed Effect Model to explain the equation after DOK are as
follows (Table 2):

Table 2
The effect of funds transfers on capital expenditure and expenditure on goods and services after
DOK
Dependent Variable
Independent Variable
LN_BM P_Value LN_BBJ P_Value
Constanta 0.740 0.000 3.644 0.000
LN_DAK 0.488 0.000 0.164 0.001
LN_DAU 0.339 0.008 0.485 0.002
LN_DBH -0.072 0.115 -0.233 0.000
LN_PAD 0.123 0.000 0.210 0.000
LN_DOK 0.072 0.595 0.017 0.792
Observations 391 391
R-squared 0.793 0.875
Source: Processed Data (2018).

Equation of the effect of funds transfers on capital expenditure after DOK

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LNBMit = 4.134 + 0.194 LNDAKit + 0.332 LNDAUit + 0.073LNDBHit + 0,0073LN PADit +

eit (7)
Equation of the effect of funds transfers on goods and services spending after DOK
LNBBJit = 8.523 + 0.024 LNDAKit + 0.167 LNDAUit + 0.023LNDBHit + 0,003 LN PADit +
eit (8)

The results of Table 2 provide an explanation that there is an effect of DAK after DOK on
capital expenditure. This can be seen in the results of interactions after the DOK variable. DAK
has an elasticity value of 0.498 percent, meaning it has an increase of 0.296 compared to before
DOK. These results are consistent with previous studies conducted by Putra (2011), Hamdani
(2012), Surakarta (2015, 2015), and Juanda (2017). They show that DAU has a positive and
significant effect on the allocation of capital expenditure. Meanwhile, the influence of DBH on
capital expenditure has decreased compared to before the DOK. This was caused by the growth
of DBH, which was negative after DOK. PAD contribution has increased after the DOK of
capital expenditure to 0.122 percent. PAD has a significant effect on capital expenditure, but
before DOK the PAD variable did not have a significant effect, and DOK did not have a
significant effect on capital expenditure (ceteris paribus). Based on the value of R2 = 0.875, it
can be concluded that this model can explain the diversity of the dependent variable by 87.5
percent.

After the DOK, the increase in the DAU, DAK and PAD variables significantly affected the
expenditure of goods and services, while the DOK did not affect the expenditure of goods and
services. The results show that the variable with the biggest influence on the increase in goods
and services expenditure after the SARET is the DAU variable. Each DAU increase of 1
percent will increase goods and services expenditure by 0.31 percent. When the PAD variable
increases by 1 percent, it will increase the expenditure of goods and services by 0.21 percent.
Each DAK increase of 1 percent will increase spending on goods and services by 0.16 percent,
while DBH has no significant effect (ceteris paribus).

2. Effects of capital expenditure and goods expenditure on poverty, HDI and unemployment.

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Table 3
Coefficients of the influence of capital expenditure, goods and services expenditure and GRDP
on poverty, HDI, and Unemployment
Dependent Variable
Independent
Pov P Value Independent LN_IPM P Value TPT P
Variable
Variable Value
CONSTANTA 1,489 0,000 CONSTANTA 3,438 0,000 9,700 0,160
LN_BM(-1) 0,148 LN_BM 0,014 0,0000 - 0,509
0,006 0,302
LN_BBJ - 0,000 LN_BBJ 0,014 0,0000 0,611 0,608
0,060
LN_PDRBK(- - 0,000 LN_PDRBK 0,036 0,0752 - 0,999
1) 0,046 0,282
DOK - 0,000 DOK -0,274 0,0000 2,308 0,383
0,211
LN_BM(- - 0,006 LN_BM*DOK 0,009 0,0007 - 0,207
1)*DOK 0,026 0,724
LN_BBJ*DOK 0,051 0,000 LN_BBJ*DOK 0,006 0,0068 0,587 0,950
LN_PDRBK - 0,001 LN_PDRBK 0,009 0,0116 - 0,673
0,008 0,102
Observations 391 Observations 391 391
R-squared 0,947 R-squared 0,975 0,957
Source: Processed Data (2018).

Table 3 regards the equation of the influence of capital expenditure and goods and services
expenditure as well as GRDP on poverty, HDI and unemployment before and after DOK as
follows:

The equation of the effect of capital expenditure and expenditure on goods and services and
GRDP on poverty before DOK.
Povit=1.489+0.005LNBMit-1-0.059LNBBJit-0.046LNPDRBKit-1+eit (9)
The equation of the effect of capital expenditure and goods and services expenditure as well as
GRDP on poverty after DOK.
Povit=1.278-0.019LNBMit-1-0.0089LNBBJit-0.0545LNPDRBKit-1+eit (10)
The equation of the effect of capital expenditure and goods and services expenditure as well as
GRDP on HDI before DOK.
LN_IPMit=3.438+0.014LN_BMit -0.014LN_BBJit+0.036LN_PDRBKit+eit (11)
The equation of the effect of capital expenditure and goods and services expenditure and GRDP
on HDI after DOK.
LN_IPMit=3.165+0.023LN_BMit -0.021LN_BBJit+0.045LN_PDRBKit+eit (12)
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The equation of the effect of capital expenditure and goods and services expenditure and GRDP
on unemployment before DOK.
TPTit=2.997-0.031LN_BMLit -0.042LN_BBJit+0.0001LN_PDRBKit+eit (13)
The equation of the effect of capital expenditure and goods and services expenditure and GRDP
on unemployment after DOK.
LN_TPTit=3.964-0.095LN_BMit -0.047LN_BBJit-0.025LN_PDRBKit+eit (14)

Equation results (9) and (10) show that the variable expenditure on goods and services
significantly influences poverty reduction before and after the special autonomy fund.
Capital expenditure and GRDP do not affect poverty, but if using lag from the previous year
(t-1), both variables show a significant effect. The variable coefficient of capital expenditure is
0.019 percent and GRDP is 0.0545 percent. This means that any increase in the allocation of
capital expenditure in the previous year after the special autonomy fund reached 1 percent can
reduce poverty by 0.019 percent. The same thing is shown by the variable and GRDP growth,
which has a negative influence on poverty. Every increase of economic growth in the previous
year by 1 percent will reduce poverty in the coming year by 0.0545 percent. Every increase in
the allocation of spending on goods and services by 1 percent can reduce poverty by 0.0089
percent.

The scheme of the effect of budget allocation before DOK indicates an increase in the amount
of DAU by 1 percent is expected to be able to contribute to poverty reduction in Aceh by 0.0012
percent through spending on goods and services. Allocations through capital expenditure have
not been able to show a real change in poverty. Likewise, a DBH increase of 1 percent can
affect poverty reduction in Aceh by -0.0014 percent through spending on goods and services.
DAK and PAD funds have not been able to show a significant effect on poverty.

These results are in line with the results of the study of Wan and Sebastian (2011), who
examined the Asia Pacific region using the poverty lines of the US ($1.25 per day and US $2
per day). Their research shows that the elasticity of poverty in relation to economic growth in
Aceh is relatively low compared to other countries. The poverty line of $1.25 per day gives the
value of Indonesia's poverty elasticity of -0.88. This means that in the case of economic growth
of 1 percent, the poverty rate decreases by 0.88 percent (ceteris paribus). If the poverty line is
raised to $2 per day, then each increase in economic growth by 1 percent only reduces the
poverty rate in Aceh by 0.34 percent. Furthermore, the lagging economic growth variable of
the previous year (t-1) prior to the availability of DOK can also affect the decline poverty. With
an increase in economic growth of 1 percent, the impact on poverty reduction is 0.046 percent.

In terms of the influence of budget allocation after DOK, it can be seen that all determinant
variables can influence poverty reduction after the availability of DOK. An increase in the
amount of DAK by 1 percent is expected to reduce poverty in Aceh by 0.0009 percent if
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Volume 12, Issue 10, 2020

including lag fr0m the previous year (t-1) through capital expenditure and 0.002 percent
through goods and services spending, or with a total DAK against poverty reduction of 0.011
percent. The increase in DAU is also expected to be able to influence poverty reduction in Aceh
through capital expenditure and goods and services expenditure. A 1 percent increase in DAU
can reduce poverty by 0.006 percent through capital expenditure if including lag from the
previous year (t-1) and 0.005 percent through goods expenditure and services, or the overall
total impact of the DAU on poverty reduction of 0.012 percent.

While an increase in PAD also has an impact on poverty reduction, an increase in PAD of 1
percent can affect poverty reduction in Aceh by 0.0023 percent both through capital
expenditure and through goods and services spending. As a result, the total effect due to an
increase in PAD of 1 percent can reduce poverty by 0.05 percent. The special autonomy fund
and DBH have not been able to show a real effect on poverty. Economic growth before the
special autonomy fund could also affect poverty reduction, with an increase in economic
growth lag from the previous year (t-1) of 1 percent, the impact on poverty reduction was -
0.0545 percent. All determinant variables can show a greater influence on poverty reduction
after fiscal decentralisation through special autonomy. These results are in line with the results
of a study by Sepulveda, Martnez and Yao (2009). Their research shows that fiscal
decentralisation policies can show a significant influence on the reduction of poverty in
developing countries in Africa.

The impact of capital expenditure, goods and services expenditure and GRDP growth on HDI
is shown in equations (11) and (12). All independent variables before DOK had a positive effect
on HDI. The effect of capital expenditure allocation on HDI before the presence of DOK was
0.014 percent, but after the DOK it was 0.023 percent (showing an increase in coefficient of
0.009 percent). This means that each increase in capital expenditure by 1 percent will increase
the HDI by 0.023 percent. The same thing is shown by the variable expenditure allocation for
goods and services; each increase in goods and services expenditure by 1 percent will cause an
increase in HDI of 0.020. GRDP growth can increase HDI; each increase of 1 percent causes
an HDI increase of 0.045 percent (ceteris paribus). The results show that fiscal decentralisation
through DOK policy can show a more real influence on the improvement of HDI in Aceh
Province. This is in line with the results of studies conducted by Freinkman (2010) in 73 regions
in Russia, Sepulveda et al (2011), and the results of Soejoto et al (2015).

Discussion

The impact of DAK, DAU, DBH, and PAD through capital expenditure allocations, goods and
services expenditure allocations as well as GRDP growth cannot significantly explain
unemployment prior to the DOK. Before the DOK, there were no determinant variables that
could show a real effect on unemployment. After the DOK, there was a different effect on
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unemployment. This was after the implementation of fiscal decentralisation in the presence of
DOK. The results can explain the significant effect on unemployment reduction in Aceh
Province. This is in line with the results of Faridi (2011), who examined the relationship
between fiscal decentralisation and employment opportunities in Pakistan. The results of his
research found that the effect on unemployment varies greatly depending on fiscal policy and
the distribution of income and expenditure of each province. It can significantly influence
employment opportunities. This is in line with the results of research conducted by Faridi et al
(2012), who examined the relationship between fiscal decentralisation and employment in
Pakistan. They found the effects of fiscal decentralisation differ depending on the share of
income and expenditure of each province. It significantly encourages employment
opportunities.

This is also in line with the results of the study of Martinez and Yao (2009) and Amagoh and
Amin (2012). They concluded that in addition to economic growth, the impact of the success
of fiscal decentralisation was also shown to increase local people's participation in development
and economic activities. They developed a model to analyse the relationship between
decentralisation and employment opportunities in the public sector. They found that
decentralisation of expenditure significantly boosted employment opportunities (reduced
unemployment). The results of the study conclude that the impact of fiscal decentralisation is
very different among some regions and is strongly influenced by the income and expenditure
allocation of each region so that it can actually encourage job creation.

Conclusion

The special autonomy fund for the Aceh government is still a large source of revenue (50% of
the APBD) in Aceh Province. Before the special autonomy fund, DAK, DAU, and PAD
showed a real influence on capital expenditure, but after the special autonomy fund, only DAK
showed an increase in influence on capital expenditure. Furthermore, the influence on spending
on goods and services prior to the special autonomy fund is only the case for DAU. It shows a
real effect. After the special autonomy fund, DAK, DAU, and PAD show effects of increasing
in spending on goods and services.

Regarding the influence on poverty, HDI and unemployment before the special autonomy fund,
DAK, DAU, DBH, and PAD variables have a significant influence on poverty reduction,
increase HDI through capital expenditure and cannot show a real effect on unemployment.
Through the allocation of goods and services spending, only the DAU has a significant
influence on reducing poverty and increasing HDI. Unemployment also cannot show a real
impact. However, after the introduction of special autonomy funds, DAK and DAU were able
to show a greater significant effect on reducing poverty, increasing HDI and reducing
unemployment. They do so through capital expenditure (compared to spending on goods and
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services). PAD had a significant effect on reducing poverty and increase HDI only through
spending goods and services. These results show that the special autonomy fund has not been
able to show a real influence on increasing poverty reduction, increasing HDI, and reducing
unemployment both through capital expenditure and through spending on goods and services.
However, after the existence of special autonomy funds, DAK, DAU, DBH, and PAD can show
a more significant increase in their influence on poverty reduction, HDI, and reduction of
greater unemployment through capital expenditure than their influence on goods and services
expenditure. Local governments should prioritise capital expenditure from special autonomy
funding sources so that they can reduce poverty, increase HDI and reduce unemployment.
Local governments must harmonise regulations that govern regional development planning,
management of regional finances and evaluation of regional development performance. In
addition, increasing the ability of a local government apparatus and the active role of the
community is needed to encourage increased regional development performance.

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