Suwarno

Type of the article: Research Article

Abstract
Despite sustained growth in regional expenditure following two decades of fiscal decentralization, Indonesian provincial governments continue to fall short of mandatory minimum service standard (MSS) targets. This study examines the effects of capital expenditure, social assistance expenditure, and regional own-source revenue on MSS achievement across 38 Indonesian provincial governments over 2019–2024, and evaluates the moderating role of the internal control system. An unbalanced panel of 210 province-year observations is analyzed using fixed effects moderated regression analysis, with robustness checks incorporating year fixed effects and cluster-robust standard errors. Capital expenditure (β = 1.8076, p < 0.001) and social assistance expenditure (β = 1.9355, p < 0.001) both exert significant positive direct effects on MSS achievement, confirming their roles as the primary supply-side and demand-side fiscal channels, respectively, while regional own-source revenue produces no significant direct effect. The internal control system positively moderates the revenue–MSS relationship (β = 0.2173, p = 0.001) but significantly weakens the positive effects of both capital (β = −0.5236, p < 0.001) and social assistance expenditure (β = −0.5907, p < 0.001) – an asymmetric pattern attributed to procedural rigidity and conservative budget absorption practices within SPIP Level 1-3 maturity. These findings establish that internal control systems produce asymmetric governance effects conditioned on the accountability structure of each fiscal instrument, and that fiscal autonomy generates MSS gains only when complemented by effective institutional governance. As these results derive from observational provincial panel data, they should be interpreted as robust associations rather than causal effects.