Fiscal decentralization and human development index: Examining the moderating effect of capital spending in Bali

Human Development Index is one of the indicators that can be used to measure the success or performance of a country or region in human development. In 2022, Bali Province was one of the provinces with a "high" HDI achievement but is still faced with a gap in the HDI achievement rate between each region in Bali Province. The gap in the HDI achievement rate of each region in Bali Province indicates that the fiscal decentralization process in the regional autonomy policy has not been able to run optimally. This research examines the effect of fiscal decentralization on the human development index of regencies/municipalities in Bali Province using capital expenditure as a moderating variable to explain contingency factors that are thought to influence the effect of fiscal decentralization on the human development index. Using data on HDI achievement and realization of regional revenue and expenditure budgets of Bali Province for the period 2014-2019. The analysis technique used is Moderated Regression Analysis (MRA) with SPSS application. The results prove that partial fiscal decentralization has a significant positive effect on the human development index. Capital expenditure is able to weaken the positive effect of fiscal decentralization on the human development index. When a region has good regional financial independence, the local government will be able to manage its regional income in order to improve and improve public services, which will ultimately be able to improve the welfare of the community.

even more severe considering that from 2020 to 2022, there was a Covid-19 pandemic which greatly impacted Bali Province, especially in the tourism sector. HDI is a composite index of the education, health, and purchasing power indices which is expected to measure the level of success of human development as reflected by a population that is educated, healthy and long-lived, skilled and has an income for a decent life [2] Increasing HDI achievements in autonomous regions is a big responsibility for a government that runs the autonomous region. Government efforts in increasing HDI can certainly be done by allocating regional income sources to the regional budget with the right target. The regional budget can be allocated to sectors that can increase HDI, such as education, health, and infrastructure.
The gap in the HDI achievement rate of each region in Bali Province indicates that the fiscal decentralization process in the regional autonomy policy has not been able to run optimally. Local governments can use fiscal policy instruments such as maximizing the use of local revenue as a source of funding for spending on sectors that can increase the value of the human development index. One indicator that can be used to measure a region's fiscal decentralization level is the ratio of total local revenue to the total revenue of the region [3].
Based on the Bali Province Budget Realization Report in 2019 (before the Covid-19 pandemic), the highest amount of local revenue was in Badung Regency, which amounted to Rp 4,835,188,460,000 then in second place was occupied by Denpasar City, which amounted to Rp 1,145,938,988,000, and in the last place was Bangli Regency, which amounted to Rp 127,040,436,000. If aligned with data on HDI achievements in each region in Bali Province in 2019, it shows an interesting phenomenon. The highest realization of local revenue in 2019 was owned by Badung Regency, but it has not been able to achieve the highest HDI figure in Bali Province. Likewise, Bangli Regency has the smallest realization of local revenue, but the lowest HDI achievement in Pengaruh Desentralisasi Fiskal Bali Province in 2019 is Karangasem Regency. This phenomenon can be a sign that the implementation of fiscal decentralization in each region in Bali Province still needs to be optimized.
In their research, [4] stated that fiscal decentralization had a positive and significant effect on the Human Development Index in 9 cities in East Java Province from 2008-2017. This is in line with research conducted by [5] that stated that local revenue significantly affects the human development index in the district/city of South Sulawesi Province in 2013-2020. However, different results were found by [6], their research stated that fiscal decentralization has a negative effect on the human development index. The differences in research findings related to the effect of fiscal decentralization on the human development index can certainly be influenced by various factors that occur in each region. Different research results can also be caused by contingency factors that can weaken or strengthen the influence of fiscal decentralization on the human development index.
Local governments should be able to further optimize the fiscal decentralization process by making appropriate allocations to prepare the Regional Budget. In essence, the preparation of the Regional Budget is used to improve the welfare of the people of a region and is prioritized for the public interest. Allocation of budget expenditure into the right post and following the needs will trigger positive growth in public welfare [7]. If allocated appropriately, the allocation of regional expenditure should be able to improve the community's welfare. However, when there is a conflict of interest between the community and the government, it will cause regional expenditure in the form of capital expenditure to be less than maximally useful. Good financial management can be seen in local government policies that allocate more of the budget to the interests of the community, which is called capital expenditure.
The allocation between capital expenditure and routine expenditure can be given the right allocation and adjusted to the region's circumstances. During President Joko Widodo's administration, government policy emphasized a greater allocation of capital expenditure, especially in the infrastructure sector, to accelerate national development and improve people's welfare. This policy certainly needs to be harmonized and implemented by local governments in the realization of regional expenditures. Local governments are expected to allocate a larger portion of capital expenditure than routine expenditure.
The Government of Bali as the executor of the autonomous regional government is faced with the obligation to manage its region independently, and can carry out the fiscal decentralization process properly. Given that Bali Province has attraction of tourists and cultural objects, it has a large amount of local revenue and continues to increase every year. This sizable regional revenue is expected to be managed properly by the government so that the community can feel the benefits of local revenue, which is the main actor in generating this revenue. Capital expenditure allocation strategies by local governments play an equally important role in improving the welfare of the community, which will be reflected in an increasing HDI index.
Based on the preliminary explanation related to the gap in the achievement of the human development index, researchers feel the need to re-examine the effect of fiscal decentralization on the human development index of regencies/cities in Bali Province. This research will use capital expenditure as a moderating variable to explain the contingency factors that influence fiscal decentralization's effect on the human development index. The data used in this research is following the enactment of President Joko Widodo's policy related to accelerating and increasing the realization of capital expenditure from 2014 to 2019. The problem formulations in this research are (1) Does fiscal decentralization affect the human development index; (2) Does capital expenditure moderate the effect of fiscal decentralization on the human development index.

Literature Review
Agency relationship is an agreement (contract) between two parties, the principal and the agent, where the principal authorizes the agent to make decisions on behalf of the principal [8]. In the public sector, the principal party is the community proxied by the house of representatives at the provincial and the local government is the agent. The local government (agent) should act following the principal's will (society). Sometimes, in reality local governments behave opportunistically in making decisions related to the public [9]. This is in accordance with agency theory, between principals and agents do not always have the same interests (conflict of interest) and agents tend to take actions that maximize their utility.
The United Nations Development Programme (UNDP) in 1990 introduced the Human Development Index, an indicator that can describe the development of human development in a measurable and representative manner. The Central Bureau of Statistics (BPS) suggests that the HDI concept is formed by three basic dimensions, longevity and healthy life (a long and healthy life), knowledge, and decent standard of living [2]. The HDI figure ranges from 0 to 100, which means that closer to 100 indicates better human development [10].
Listed in Law No. 32/2004 concerning regional government, decentralization is the transfer of government authority by the government to autonomous regions to manage their own regional affairs. Fiscal decentralization is revenue or expenditure that is managed by the authorities from the national to the local level [11]. A good implementation of fiscal decentralization can be achieved when local governments can manage their local finances in an appropriate manner, and minimize dependence on the central government. Through the ratio of the degree of decentralization, it can be seen how much the local government can carry out decentralization by increasing local revenue, which is indicated by the contribution of local revenue to local revenue [12].
Capital expenditure is regional expenditure that is allocated fairly and evenly so that it can be enjoyed by all levels of society without discrimination, especially in public services [13]. Capital expenditure is one component of direct expenditure which functions to finance investment needs. Capital expenditure is the purchase, procurement, or construction of tangible fixed assets whose useful value is more than a year, and or the use of services in local government programs and activities [14].
Financial reports are the result of the process of identifying, measuring, and recording economic transactions of an entity which is used as the basis of information in the context of accountability for financial management and as a basis for making economic decisions by external parties to the entity that need it [15]. Local government financial statements are a description of the performance results of regional achievements for certain activities that use funds in the form of expenditures or financing as well as revenue funds received from local revenue, transfer funds, donations, and balancing funds from the central government [16]. According to the government accounting conceptual framework, financial statements are used to compare the realization of revenue, expenditure, transfers, and financing with the established budget, assess financial condition, evaluate the effectiveness and efficiency of a reporting entity, and help determine its compliance with laws and regulations.
The implementation of good fiscal decentralization can be achieved when local governments can manage their local finances in an appropriate manner, and minimize dependence on the central government. Through the ratio of the degree of decentralization, it can be seen how much the local government's ability to carry out decentralization by increasing local revenue, which is indicated by the contribution of local revenue to local revenue [12]. The greater the local own-source revenue, the freer the local government is to be able to allocate finances to sectors that can prosper the community, costs for increasing life expectancy index, education costs, and in the field of purchasing power parity, all three of which are the basis for measuring HDI. In their research, [4] found that fiscal decentralization positively and significantly affected the Human Development Index in 9 cities in East Java Province in 2008-2017. This is in line with research conducted by Rusydi et.al. (2022) that found that local revenue significantly affects the human development index in the districts / cities of South Sulawesi Province in 2013-2020 [14]. A region's increasing degree of fiscal decentralization will increase the achievement of the human development index.

H1. Fiscal decentralization has a positive effect on the human development index.
Capital expenditure has a very important role in improving the community's welfare, especially in improving public facilities and infrastructure to support improved services in the public sector. Appropriate allocation of capital expenditures such as revamping regional infrastructure and adequate public facilities will improve the quality and quantity, increase regional productivity and community income, and increase the Human Development Index [17]. The budget allocated for capital expenditures needs to adjust to the ability of local revenues, especially local own-source revenues reflected in the degree of fiscal decentralization. If the amount of local revenue is sufficient, the local government will be more free to allocate the budget to realize capital expenditures to increase the human development index. In this research, capital expenditure is expected to moderate the effect of fiscal decentralization on the human development index. A region's increasing degree of fiscal decentralization will increase the achievement of the human development index. It will increase further if the government increases the realization of capital expenditure. In their research, [18] found that capital expenditure can moderate the effect of regional financial components on the human development index of regencies / cities in Bali Province in 2008-2013. This aligns with research conducted by [19] that found that the allocation of capital expenditure moderates the effect of regional fiscal space on HDI. H2. Capital expenditure moderates the effect of fiscal decentralization on the human development index.

Method
This research is quantitative, in the form of associative research where research examines the effect of an independent variable on the dependent variable or knows the relationship between variables. The relationship between variables in this research is presented in the conceptual framework as figure 1. In this research the data used is panel data, which is data that combines cross data and time series data so that it will have several objects and several time periods. The type of data in this research is secondary data.
The human development index variable comes from various sources of data and information collected by the Central Bureau of Statistics at the regional level. The human development index data used in this research is the HDI achievement rate of each district and city in Bali Province for the 2014-2019.
The degree of decentralization is calculated based on the ratio between the amount of local revenue and total local revenue. The measurement parameter of the fiscal decentralization variable is the ratio of regional own-source revenue to total regional revenue from each regency and city in Bali Province for the 2014-2019.
The capital expenditure variable is obtained from the total realization of capital expenditure by each regency and city in Bali Province for the 2014-2019.

Results and Discussion Data Analysis and Hypothesis Test Results
Before conducting the Moderated Regression Analysis test, the data used in the research has passed a series of classical assumption tests, including normality, autocorrelation, multicollinearity, and heteroscedasticity tests. The results of the classical assumption test show that the data used is normally distributed, free from autocorrelation, has no multicollinearity between variables, and does not contain symptoms of heteroscedasticity. After fulfilling the classical assumption test requirements, the data can be tested for Moderated Regression Analysis with the results in table 2. The regression coefficient value of fiscal decentralization is 0.184 with a significance level of 0.000 <0.05. This result means that fiscal decentralization has a significant positive effect on the human development index. Hypothesis 1 in this research is accepted.

2) Regression Equation Model 2
(1) The regression coefficient value of fiscal decentralization is 0.406 with a significance level of 0.000 <0.05. This result means that with the moderating interaction of capital expenditure, partially fiscal decentralization has a significant positive effect on the human development index.
(2) The regression coefficient value of capital expenditure is 1.272 with a significance level of 0.112> 0.05. This result means that with the moderating interaction of capital expenditure, partially capital expenditure has a positive and insignificant effect on the human development index. (3) The regression coefficient value of capital expenditure moderation in the relationship of fiscal decentralization on the human development index is -3.437 with a significance level of 0.001 <0.05. This result means that capital expenditure can moderate (weaken) the positive effect of fiscal decentralization on the human development index. Hypothesis 2 in this research is accepted.
As evidence that the regression model used is suitable for use as an analytical tool, it is necessary to test the suitability of the model (f test). Because the research tests the effect of the independent variable on the dependent variable, it is necessary to measure the ability of the independent variable to explain the variation in changes in the dependent variable by analyzing the coefficient of determination (adjusted r square). The results of the f test and the coefficient of determination analysis in this research are presented in table 3: Based on the results of the model fit test (f test) in Table 3, it can be seen that the p-value (Sig. F) of the two regression equations is 0.000 less than the α = 0.05 value. This shows that the two regression equation models used in this research are suitable for an analytical tool to test the effect of independent and moderation variables on the dependent variable. Regarding the coefficient of determination analysis, the first regression equation model obtained an adjusted r square value of 0.567 which means that 56.7% of the variation in HDI changes can be explained by the fiscal decentralization variable. In the second regression equation model, there is an increase in the adjusted r square value to 0.714, which means that 71.4% of the variation in HDI changes can be explained by the variables of fiscal decentralization, capital expenditure, and the interaction of moderating capital expenditure variables.

Discussion
Based on data testing results, partially fiscal decentralization has a significant positive effect on the human development index. These results accept hypothesis 1, fiscal decentralization has a positive effect on the human development index in the Regency / City of Bali Province in 2014-2019. When a region has good regional financial independence, the local government will be able to manage its regional income in order to improve and improve public services, meet public needs, carry out government activities properly, and finance regional development which will ultimately be able to improve the welfare of its people as measured by the achievement of the region's HDI. The financial independence of a region is inseparable from the role of local revenue in financing government spending. Suppose the local revenue of a region can increase. In that case, the dependence of a region on external assistance can be reduced so that the implementation of development can run well and the realization of community welfare. These results are in line with research conducted in East Java Province in 2019, fiscal decentralization has a positive and significant effect on the Human Development Index in 9 cities in East Java Province in 2008-2017 [17]. In relation to Agency Theory, local governments have been able to manage their local revenues in order to improve and improve public services that have an impact on increasing HDI so that it does not indicate an agency conflict. A region's financial independence level can be measured by the ability of local revenue to finance its own regional development. The main objective of regional development is to improve the welfare of the community for the better in the future.
Based on the data testing results, capital expenditure can moderate (weaken) the positive effect of fiscal decentralization on the human development index. These results accept hypothesis 2, capital expenditure moderates the effect of fiscal decentralization on the human development index in the Regency / City of Bali Province in 2014-2019. Capital expenditure can weaken the positive effect of fiscal decentralization on the human development index can be caused by various things, one of which is the lack of maximum local government in the feasibility study of a capital expenditure project. This will cause the realization of the capital expenditure budget from an area to not be maximally utilized for the benefit of the community. Weaknesses in the feasibility study of capital expenditure projects will result in the ability of regional spending in implementing regional autonomy being less than optimal and tending to have a negative influence. The ability of local governments to self-finance capital expenditures becomes less useful due to capital expenditure projects that are not yet feasible and are not really needed by the community. Ineffective capital expenditure can result in waste and not optimal use of budget realization. These results are in line with research conducted in Bali Province in 2015, capital expenditure was able to moderate (weaken) the effect of regional finance on the human development index [19]. In relation to Agency Theory, local governments as budget managers need to consider capital expenditure realization plans with the house of representatives at provincial in order to achieve targeted realization and can optimize the fiscal decentralization process so as to increase the human development index. It is not easy for local governments to be able to determine and allocate capital expenditure budgets to create projects that are truly needed and beneficial to the public interest. Therefore, studies and coordination with various parties are needed so that the realization of capital expenditures can maximize the fiscal decentralization process and support an increase in the human development index.

Conclusion
This research found that partially fiscal decentralization has a significant positive effect on the human development index. The degree of fiscal decentralization that has been achieved by each regency / city in Bali Province in 2014-2019 has been able to influence the increase in the achievement of HDI in each region. When a region has good regional financial independence, the local government will be able to manage its regional income to improve and improve public services, which will ultimately improve the welfare of its people as measured by the achievement of HDI. This research also found that capital expenditure is able to moderate (weaken) the positive effect of fiscal decentralization on the human development index. The government's inability to analyze the feasibility research of a capital expenditure project is thought to have an impact on the implementation of regional autonomy. The capital expenditure budget cannot be optimally utilized so that it is unable to encourage efforts to improve community welfare.
This research has limitations on the research data used in 2014-2019 before the Covid-19 pandemic. This was done to ensure that the data used remained constant and avoided the economic impact during the Covid-19 pandemic. Future research can re-examine the effect of capital expenditure variables on the human development index using data year t-1 (one year earlier). There is a possibility that the benefits of government capital expenditure will have an impact on people's welfare after passing the year of realization of the capital expenditure.