Impacts of Government and Household Expenditure on Human Development Index

Niken Sulistyowati 1 , Bonar Marulitua Sinaga 2 , Novindra 3

1 Economics and Business Faculty, Magister Management Programme, Post Graduate Programme, Mercu Buana University, Jakarta

2 Economics and Management Faculty, Bogor Agricultural University 3 Economics and Management Faculty, Bogor Agricultural University

Permalink/DOI: http://dx.doi.org/10.15294/jejak.v10i2.11305

Received: February 2017; Accepted: May 2017; Published: September 2017

Abstract

The objective of this reseach are to: (1) analyze the factors affecting human development index and household expenditures for health, education and others, (2) predict the impacts of government expenditure policy in the field of education, health, and infrastructure on human development index in Central Java. The model was built using econometric approach in the form of a system of simultaneous equations, including five blocks i.e. government's revenue, expenditures, input, output, and performance. The system of simultaneous equations consisted of 26 equations (19 structural equations and 7 identity equations). The estimation method used Two Stage Least Squares with SYSLIN procedure. Prediction simulation used the stepwise Autoregressive method. The model simulation used Newton's method and SIMNLIN procedure. The results of policy simulation concludes that the combination of the increase in government expenditure for education and infrastructure lead to better performance in increasing income per capita, disposable income and HDI compared to the combination of the policy of the increase in government expenditure for education and in both municipalities and district, but municipalities receive greatest impact compared to the district.

Key words : government expenditure on education, government expenditure on health, government expenditure on infrastructure, household expenditures, human development index.

How to Cite: Holik, Sulistyowati, N., Sinaga, B., & Novindra, N. (2017). Impacts of Government and Household Expenditure on Human Development Index. JEJAK: Jurnal Ekonomi Dan Kebijakan, 10(2), 412-428.

doi:http://dx.doi.org/10.15294/jejak.v10i2.11305

Address: Jalan Meruya Selatan No.1, RT.5/RW.1, Joglo, Kembangan, Kota Jakarta Barat, Daerah Khusus Ibukota Jakarta 11650

E-mail: nikensulistyowati@mercubuana.ac.id

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 413

INTRODUCTION

the core of welfare, while education is the key to achieve proper and precious life. Both factors are

The 21st century is marked by the fundamental to shape human capability, in

improvement of human resources quality. which this is the core of development

Challenging development in 21st century significance. (Todaro and Smith, 2006). It is

according to the Human Development Report essential to have educated and trained labor

is concerning aspects of social justice and greater access to the better quality of human

force for sustainable economic growth. life (United Nations Development Program,

Everything may only be achieved by the presence 2016). Basically, quality of life boils down to

of good health and education. When children are given proper nutrition, hence their health will

the recognition of human dignity. Human automatically improve. A healthy childeren may

being is one of factors of production improve his performance in school. It is

determining nation

welfare.

Natural

characterized by the decrease number of their resources will be worthless if there is no

absence at school, decrease number of drop out human being who is able to manage it.

rate, increase in children's learning abilities, and Effective human resource is a prerequisite for

attaining economic growth and welfare. increase in children's school performance. A The basic idea of development is to

affect workforce increase the welfare of human life but not

good education

will

productivity; it does not only improve knowledge on entrepreneurship, but also on the importance

only economic welfare where human being of familiy planning and the impact on the decline

lives in. Howeer, the deveoplment should pay of birthrate. All of them would provide benefit

more attention to the increase in human life for the development process and produce the

quality. According to (Sen, 2001), economic productive and qualified generation. (Hess and

growth is not ultimate goal of the development. Sen analysis is often called as

Ross, 1997).

Human Development Index (HDI). HDI is of Growth retardation among children indicators describing Human Resources

reduced with higher education attainments of potential. HDI is one of measuring

their mothers. Majority of children whose mothers have no formal education were stunted

instrument that is able to reflect the status of (64.1 %), under-weight (64.9 %) and wasted (61.0

human development. Nowadays, HDI is %), relative to children whose mothers had

greatly used as one of instrument to measure secondary or higher education attainments.

the success of regional development. HDI is Similar association was established between

composite index covering three areas of human

household wealth status and child malnutrition. fundamental basis, whcih are age of life

The proportion of children from households in the richest wealth quintile and suffering from

(health), knowledge (education),

and

stunting was 3.6 %, under-weight was 3.1 % while standard of proper life. Health is measured by

wasted was 5.5 %. Child malnutrition was also life expectancy; education is measured by the

higher among male children relative to their literacy rate and the average of how long

female counterparts. Child malnutrition was also people get the education at school, as well as

standard of living measured by per capita highest in the three northern regions (namely; expenditure (Central Bureau of Statistics,

Northern, Upper East and Upper West regions). 2017). Education and health is the

The Greater Accra region recorded the lowest child malnutrition in Ghana, (Novignon et al.,

fundamental goal of development. Health is

414 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

2015). Human development approach is children under the age of one year have not relevant to government objectives, which is to

immunization. Then, embody public welfare. The core of human

received complete

maternal mortality as many as 305 deaths per 100 development is measured by its impact on the

thousand live births. Access to basic services individual lfe. Principally, human being needs

indicates that nearly five million children are not better access to obtain knowledge, health,

in school and children in Papua have high levels livelihood, security, recreation, political

of school expenditure. In the furture, this freedom as well as participation in

situation is a challenge for Indonesia to face community activities. This opinion is in line

global competition as a basis for the with the Mahbub ul Haq, founder of the

development of a knowledge-based economy. human development report, stating that the

Human development gap (HDI) between fundamental purpose of development is to

districts and municipalities in Central Java was enlarge people's choices (United Nations

evenly on the upper middle class, ranging from Development Program, 2016). The aims of the

63.98 to 81.19 points. The highest HDI was in the development are to achieve a complete

city of Semarang, while the lowest was in Brebes human development and a complete society

district. Most of the highest HDI in Central Java development. In his research, (Myers, 1963)

was still in region compared to the district. came to a conclusion that a high correlation

(Central Bureau of Statistics, 2017). between composite human development

The improvement of human resources index and GDP per capita is equal to 0.89.

quality is one of effective ways in reducing Moreover, (Nanga, 2006), stated that HDI is

inequality of income distribution and poverty in positively affected by the GDP, population

Indonesia. Health investment can reduce density, the ratio of teachers on students and

poverty by a greater percentage if it is compared the percentage of households that have access

to education investment (Nanga, 2006). to clean water.

Furthermore, in relation to income distribution, Human being is acted simultaniously as

(Albanesi, 2007) in his study stated that there

a subject and an object of development. This was a positive relationship between the implies that people are involved in the

inequality of income distribution on a cross- development process, they are not just a tool

country data and inflation. According to but they are also as the ultimate goal of

(Sulistyowati, 2013), a decrease in inequality of development.

income distribution provided positive effect in Development Program, 2016) (UNDP) under

reducing the number of poor people, where every the 2016 Human Development Report notes

10% reduction in the Gini index caused poverty that Indonesia's Human Development Index

to decrease by 4.2%.

(HDI) in 2015 is ranked 113, down from 110 of Indonesia's economic growth is still 188 countries in 2014. This HDI increased by

heavily influenced by the increase in direct about 30.5 percent in the last 25 years.

investment. Indonesia's economic growth during The number of poor people in Indonesia

the first long-term development is caused by the is around 140 million people, living on less

increase in the investment quantity and the than Rp20 thousand per day and 19.4 million

improvement of investment quality (as occured people suffering from malnutrition. Health

in developing countries). This is supported by and mortality rates, as many as two million

result on research conducted by (Amir, 2008),

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 415

which concluded that Indonesia's economic is not significant. This was confirmed by the growth is strongly affected by the investment

results of research conducted by (Sulistyowati et and workforce. The problem of poverty

al., 2010), she concluded that in the regional cannot be solved by simply only increasing

scale, education expenditure, which was 20 economic growth and expecting trickle down

percent from regional expenditure could effect. (Siregar and Wahyuniarti, 2007), used

increase the GDP in Central Java at 9,45 percent. the econometric analysis on the impact of

Input of workforce and capital are economic growth on poverty and he also used

important determinants for economic growth of panel data, aggregation of a series of data

a region. Capital accumulation shall occur when from 1995-2005 and cross section in 26

a half of income is saved and invested to increase provinces in Indonesia, then he concluded

the output and income in the future. It is that: (1) economic growth provided

necessary to do Investment to improve the significance effect in reducing poverty, but

physical capital and increase the output area. On the magnitude of the effect is relatively not

the other hand, the investment also needs to be large, (2) inflation and population also

supported by supporting facilities, which is often provded significance effect to poverty, but the

referred to infrastructure. Without a good magnitude of the effect is relatively small, (3)

infrastructure, then the investment effect will increase in share in agriculture sector and

not provide much benefit in increasing output. share in industrial sector also significantly

Research conducted by (Yudhoyono, 2004), reduced poverty, (4) education was significant

concluded that the increase in government variable and proivide the most significant

expenditure on infrastructure positively affect effect in reducing poverty.

economic growth and employment. Government Government expenditure and economic

expenditure on infrastructure is able to reduce growth had a positive correlation. The

poverty, but relatively, it less effective when Increase in government expenditure would

compared to its ability to reduce unemployment. lead to the increase in economic growth

The impact of infrastructure expenditure is most (Gould, 1983). This was similar to (Ram, 1986),

widely enjoyed in the non-agricultural sector. who examined the relationship between

This can occur as a result of government policy economic

that is still biased in urban areas compared to expenditure. The result also showed a positive

rural. This is reinforced by the results of research correlation between the increase in

conducted by (Sulistyowati, 2013) for the case in government expenditure and economic

Central Java, which stated that the increase in growth. However, it was contrary to

infrastructure expenditure by 20 billion rupiah (Saunders, 1985) and (Smith, 1985) who

could increase the GDP by 9 percent and reduce showed a negative correlation between

poverty by 21 percent.

government expediture and economic The increase in government expenditure growth, where the higher government

on education and health provided positive effect expenditure, the lower the rate of economic

in reducing poverty, although it is less effective growth of a country. Likewise (Landau, 1986),

compared to government expenditure on

he found a negative and significant effect infrastructure. The increase in government between government expenditure and

expenditure on education and health can economic growth. While, the effect of

promote economic growth and employment in education expenditure is positive, although it

agriculture

and

non-agriculture sector

416 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

(Yudhoyono, 2004). Furthermre, research wanted to examine about 1) the factors that affect conducted by (Utami, 2007), (Sumas, 2012)

the HDI, household expenditures on education, stated that government expenditure on

health and others household expenditures and 2) education and health provded positive effect

how are the impacts of government expenditure in increasing HDI. By using the general

policy (sectors of education, health, and equilibrium economic model, (Sitepu, 2007)

infrastructure) on human development index of concluded that increase in investment of

districts and municipalities in Central Java. human resources directly impact the increase in workforce productivity ecouraging the

RESEARCH METHODS

increase in real gross regional domestic This research used poled data; it is a

product indicated by the increase in the combination of time series data and cross section

capital stock, the trade balance and private data in 29 districts and 6 municipalities during

consumption. 2004 to 2011 in Central Java. The Model built by

in simultaneous development quality requires participation of

econometric

approach

equations system, covered 5 blocks, which were government and public (in the form of

government’s revenue, expenditure, input, household expenditures), either addressed

output, and performance. It consisted of 26 directly or indirectly to the IPM-forming

equations (19 structural equations and 7 identity component. At the regional scale, increase in

equations) are as follows:

education expenditure by the government can improve education (often, length of school

Block of Government Receipt

period). Increasie in public education is able First, Equation of Tax Revenue to improve health (life expectancy), then it

TAX = a 0 +a 1 PDRB+ a 2 TPP+ a 3 INV + a 4 TREND+ can increase labor productivity, employment,

a 5 LTAX+ u 1 ..........................................................(1) the GDP, and reducing unemployment,

The expected sign is: a 1 ,a 2 ,a 3 >0 and 0< a 5 <1 inequality income and poverty (Sulistyowati

et al., 2010). Government policy in improving TAX is tax revenue (billion rupiah /year), the quality of human resources is in line with

TPP is total local government expenditure the objective to reduce inequality of income

(billion / year), PDRB is gross regional domestic distribution and poverty, yet it is still

product (billion / year), INV is investment necessary to assess further the achievement of

(billion / year), and LTAX is tax last year. development of human life quality. In this

Second, Equation of Non Tax Revenue article, the authors broaden the scope of the

NTAX = b 0 +b 1 PDRB+ b 2 TPP+ b 3 POV + b 4 PTK research

+b 5 INV+ b 6 TREND + b 7 LNTAX+ u 2 ...............(2) government and household expenditure

by including

elements

The expected sign is: b 1 ,b 2 ,b 3 ,b 4 ,b 5 >0, and 0< b 7 linked to the achievement of human

development index. Government expenditure

is represented by expenditure on education, NTAX is non tax revenue (billion / year), health and infrastructure, while household

TPP is total local government expenditure expenditure is represented by expenditure on

(billion / year), PDRB is gross regional domestic education, health and other household

product (billion / year), and TREND is trend. expenditures. In this article the authors

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 417

government revenue (billion / year), and POV is Third, Equation of Total Government

poverty (people).

Revenue PENPEM

Fourth, Equation of Other Government NTAX................................(3)

TAX

Expenditures

PPL = f 0 + f 1 PENPEM + f 2 POP+ f 3 TREND + f 4 Where PENPEM is government revenue

LPPL + u 6 ..........................................................(7) (billion / year), TAX is tax revenue (billion

The expected sign is: f 1 ,f 2 , >0, and 0<f 4 <1 rupiah/ year), and NTAX is non tax revenue (billion / year).

Where PPL is government expenditures for other sectors (billion / year), PENPEM is

Block of Expenditure

government revenue (billion / year), and POP is First, Equation of Government Expenditures

population (people).

for Health

Total Government TREND+

PKESP = c 0 + c 1 PENPEM + c 2 POP+ c 3 Fifth,

Equation

c 4 LPKESP

Expenditure

u 3 .................................................(4) TPP = PKESP+ PPENP+PINF+ PPL................(8)

The expected sign is: c 1 ,c 2 >0, and 0<c 4 <1

TPP is total local government expenditures Where

(billion / year), PINF is government spending for expenditures for health (billion / year),

infrastructure (billion / year) , PKESP is PENPEM is government revenue (billion /

government spending for health (billion / year), year), and POP is population (thousand

PPENP is government spending for education people).

(billion / year), and PPL is government expenditures of other sectors (billion / year).

Second, Equation

Government

Expenditures for Education Sixth, Equation of Household Expenditure for PPENP = d 0 +d 1 PENPEM+ d 2 TREND + d 3 Health

LPPENP

PKESRT = g 0 + g 1 YD + g 2 LIPM+ g 3 POP+ u 4 ....................................................(5)

The

g 4 TREND + g 5 LPKESRT+ u 7 ............................(9)

expected sign is: d 1 >0 and 0<d 3 <1

The expected sign is: g 1 ,g 2 ,g 3 >0, and 0<g 5 <1

PPENP is government expenditures for Where PKESRT is household expenditure education (billion / year) and PENPEM is

for health (billion / year), YD is disposible government revenue (billion / year).

income (billion / year), and POP is population (people).

Third, Equation of Government Expenditures for Infrastructure

Seventh, Equation of Household Expenditure for PINF = e 0 +e 1 PENPEM + e 2 PPL+ e 3 POV+ e 4 Education

LPINF + u 5 .....................................................(6) PPENRT = h 0 + h 1 YD + h 2 LIPM+ h 3 POP+h 4

The expected sign is: e 1 ,e 3 , >0, e 2 < 0 and 0<

TREND + h 5 LPPENRT+ u 8 .............................(10)

e 4 <1 The expected sign is: h 1 ,h 2 ,h 3 >0 and 0<h 5 <1

PINF is government expenditures for PPENRT is household expenditure for infrastructure (billion / year), PENPEM is

education (billion / year), YD is disposible

418 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

income (billion / year), and LIPM is lag Second, Equation of Absorption of Agricultural human development index.

Workers PTKA = m

0 +m 1 PDRBA +m 2 UMK + m 3 TREND + m 4 LPTKA + u 12 ............................................(15)

Eighth, Equation of Other Household

Expenditures Expected sign of the parameter m

1 >0, m 2 PRTL = i < 0 and

0 1 YD + i 2 LIPM+ i 3 POP+ i 4 TREND

PTKA is absorption of agricultural labor

expected sign is: i 1 ,i 2 , i3 >0 and 0<i 5 <1

(people) and UMK is district minimum wage

(million / month).

PRTL is other household expenditures (billion / year), YD is disposible income

Third, Equation of Absorption of Industrial (billion / year), LIPM is IPM last year, and

Labor

POP is population (people). PTKI = n 0 + n 1 PDRBI + n 2 UMK + n 3 TREND +

4 LPTKI+ u 13 ...............................................…(16) Expected sign of the parameter n 1 >0, n

Ninth, Equation of Total Household

TPR = PKESRT + PPENRT + PRTL .............(12)

PTKI is industrial employment (people), WTPR is total household expenditure

PDRBI is gross regional domestic product of (billion / year), PKESRT is household

industry (billion / year), and LPTKI is absorption expenditure for health (billion / year),

of industrial employment (people). PPENRT is household expenditure for

education (billion / year), and PRTL is other Fourth, Equation of Absorption of Manpower household expenditures (billion / year).

Services

PTKS = o 0 +o 1 PDRBS + o 2 UMK + o 3 TREND+ o 4 Tenth, Equation of Investation

LPTKS+

u 14 .................................................(17)

INV = j o +j 1 SB + j 2 PINF+ j 3 LINV + u 10 .........(13)

Expected sign of the parameter o >0, o < 0 and The expected sign is: j

INV is investation (billion / year), SB is PTKS is absorption of service labor

interest rate (percent), and PINF is (people) and PDRBS is gross regional domestic

government spending for infrastructure product of services (billion / year).

(billion / year). Fifth, Equation of Total Labor Absorption

Block of Input

PTK = PTKA + PTKI+ PTKS .........................(18) First, Equation of Physical Capital

Where PTK isTotal employment (people).

PC = k 0 +k 1 INV + k 2 PINF+ k 3 PPENP + k 4 LPC+

u 11 ...................................................................(14)

Block of Output

The expected sign is: k 1 ,k 2 ,k 3 > 0, and 0<k 4 <1

First, Equation of Gross Regional Domestic Product of Agriculture

Where PC is phisical capital and PINF is PDRBA = p 0 + p 1 PC + p 2 PTKA+ p 3 TREND+ p 4 government spending for infrastructure

LPDRBA+ u 15 ..................................................(19) (billion / year).

The expected sign is: p 1 ,p 2 > 0 and 0<p 4 <1

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 419

PDRBA is gross regional domestic YCAP = PDRB/ POP ......................................(23) product of agriculture (billion / year), PC is phisical capital, and PTKA is absorption of

YCAP is gross regional domestic product agricultural labor (people).

per capita (billion / year), PDRB is gross regional domestic product (billion / year), and POP is

Second, Equation of Gross Regional Domestic

population (people).

Product of Industry PDRBI = q 0 +q 1 PC + q 2 PTKI+ q 3 TREND+ q 4 Second, Equation of Disposable Income LPDRBI+u 16 ....................................................(2

YD = PDRB – TAX .........................................(24)

0) The expected sign is: q 1 ,q 2 > 0 and 0<q 4 <1

YD is disposable income, PDRB is gross PDRBI is gross regional domestic

regional domestic product (billion / year), and product of industry (billion / year), PC is

TAX is tax.

phisical capital, PTKI is absorption of industrial employment (people), and PPENP

Third, Equation of Poverty

is government spending for education (billion POV = s 0 +s 1 TPR + s 2 UNEMP + s 3 PL + s 4 POP+ / year).

s 5 STKA + s 6 INF+s 7 LPOV + u 18 ........(25) The expected sign is: s 1 <0,s 2 ,s 3 ,s 4 ,s 5 ,s 6 > 0, and 0<s 7

Third, Equation of Gross Regional Domestic

Product of Services

PDRBS = r 0 + r 1 PC+ r 2 PTKS+ r 3 TREND + r 4

POV is poverty (person), TPR is total LPDRBS + u 17 ................................................(21)

household expenditures (billion / year), UNEMP

The expected sign is: r 1 ,r 2 >0 and 0<r 4 <1

is unemployed (people), PL is poverty

line (million / month), and STKA is share of PDRBS is gross regional domestic

agricultural labor (percent). product of services (billion / year), PC is

phisical capital, PTKS is absorption of service Fourth, Equation of Human Development Index abor (people), and PPENP is government

IPM = t 0 +t 1 YCAP + t 2 POV+ t 3 LIPM+ u 19 ....(26) spending on education (billion / year).

Expected sign of the parameter t 1 >0, t 2 < 0, and

0<t 3 <1

Fourth, Equation of Gross Regional Domestic

Product IPM is human development index, YCAP is

PDRB = PDRBA + PDRBI + PDRBS gross regional domestic product per capita

.............(22) (milion / year), and POV is the number of poor

(people).

PDRB is gross regional domestic Structural model identification was

product (billion / year), PDRBA is gross conducted based on order condition: if (K-M) =

regional domestic product of agriculture (G-1) then the equation is exactly identified

(billion / year), PDRBI is gross regional (exactly identified), if (K-M) <(G -1) then the

domestic product of industry (billion / year), equation will not be identified (under identified),

and PDRBS is gross regional domestic product and if (K-M) > (G-1) then equation in model

of services (billion / year). consitutes over identified. Where K is total

Block of Performance

variable in the model (variabel endogenous and First, Equation of Gross Regional Domestic

predetermine variables), M is total of Product per Capita

endogenous dan exogenous variable inserted to

420 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

equation and G is total of equation in the prediction are used to estimate the value of model

endogenous variables. Prediction simulation is (Koutsoyiannis, 1977). Method of model

(total endogenous

variable)

useful as an alternative reference of government estimation used method two stage least

policy in the future with respect to the squares (2SLS), because each structural

expenditure policies of education, health and equation in model is over identified.

infrastructure in order to improve the Human Estimation used Statistical Analysis System/

Development Index. The result of prediction Econometric Time Series (SAS/ETS) program

be used as policy version 9.2 and linier system procedur

simulation

can

recommendations for local governments in (SYSLIN).

Central Java for the period 2015-2020. Model To test whether the explanatory

validation was performed using non linear variables simultaniously describe the diversity

simulation procedures (SIMNLIN) and Newton's of the endogenous variables in each equation,

method. This research used prediction then F statistical test was used, with

simulation (ex-ante simulation) in the period significance level (  ) of 1%. In addition, to

from 2015 to 2020, based on the territory of the test whether or not each explanatory variable

municipality and district in Central Java. The individually provides real effect on the

prediction simulation stages are: (1) predicting endogenous variable in each equation, then t

values of exogenous variables using stepwise statistical test was used, with a significance

Autoregressive method (STEPAR) trend = 2, (2) level (  ) of 1%.

variables using To find out if the model is valid enough

predicting

endogenous

simultaneous equation model in the period from to be used for policy simulation, thus the

2015 to 2020, and (3) comparing the results of estimted value validation of econometric

basic simulation and prediction simulation in model used is the Percent Root Mean Squares

the period of 2015-2020. Analysis of prediction Error (RMSPE) and Theil's Inequality

simulation of expenditure of education, health, coëficient (U Theil). The results of model

and infrastructure on Human Development validation on 26 equation showed that 25

Index for district and municipality area, period of (96%) equation have RMSPE value below

2015-2020 was as follows: (1) combination of 25%, while based on the prediction deviation

policy of education and helath expenditure of U Theil, all of equations have value below

respectively were 100 billion IDR, (2) 16%. These results indicated that, overall, the

Combination of policy of increase in education model is valid enough to be used in the

and infrastructure expenditure respectively are prediction simulation. By considering model

100 billion IDR.

validity for both areas (district and Human development aims to expand municipal), then prediction simulation was

employment opportunities, improve the society performed for both areas. Prediction

capabilities and reduce poverty. By increasing Simulations on exogenous variables was

in capacity of education, health, and public performed for period of 2015 to 2020, using

revenue, it is expected that the aim of economic the method of prediction of forecasting

and human development goals can be achieved Autoregressive Integrated Moving Average

simultaneously. The model in this study stated (ARIMA) and Stepwise Autoregressive

that the increase in education expenditure would (STEPAR). Results of exogenous variables

increase employment. While the increase in

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 421

health and infrastructure expenditure can

RESULTS AND DISCUSSION

improve physical capital. The Increase in The result of equation of Human

employment and physical capital can boost Development Index showed determination

the improvement of the GDP, increase coefficient (R 2 ) of 2.3%. Endogenous variable in income per capita and Human Development

the equation of Human Development Index was Index. On the other hand the increase in the

significantly affected by explanatory variablels GDP also affected the increase in people's

that was simultaneously showed by F statistic on income (disposable income). Increase in

significance standard (  ) of 0.01 by the value of revenue, encourage society to promote their

209,26. The estimated result of equation of household expenditures for education, health

Human Development Index showed that HDI and other expenditure.

was significantly affected by income per capita,

poverty, and HDI in the past year by a sign that

is suitable with hypotheisis. For further

equation of Human

Expenditure

Tax

Education employment

Development Index, you may find it in the Table

Expnditure Non Tax

Health

Income per

Expenditure Physical

Table 1. . Estimated result of equation Capital

capita

IPM

Infrastructure parameter of Human Development Index Expenditure

PDRB

Disposable Short

Long

Income Perception Prob

term term

Household Expenditure

per capita

Figure 1. Model of Government and

Household impact on Human Development -0.03

past year

2 Fhit =209.26 Prob.F = 0.0001 Dw =1.68681 R Increased household expenditure is =0.72343 Sources: Result of output SAS/ETS, version 9.2.

influential in reducing poverty. The decline

number of poor people will increase the The effect of all independent variable is Human Development Index. Increased HDI is inelastics to HDI variable. In a short term, 10% an indication of increased welfare, so as to increase in income per capita lead to the 0,1% encourage people to increase their household increase in HDI and every 10% poverty decline, expenditures. Increased HDI also resulted in there will be 0,1% increase in HDI. In a long term, increased government revenue and encourage 10% increase in income per capita lead to 0.3% the government to increase the government increase in HDI and 10% poverty decline will lead expenditure.

Increased

government

to the 0,3% increase in HDI. This result is in line expenditure can stimulate the economy and with the research conducted by (Cahyadhi, improve HDI, and so they can affect each 2005), stating that economic development, other simultaneously. Model can be seen allocation for social budget, ratio of education completely in Figure 1. tools, ratio of health tools, the average householf

422 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

expenditure provides positive effect, while coefficient (R 2 ) of 69.2%. Endogenous variable in poverty provides negative effect on HDI

the equation of household expenditure on health achievement. It is also supported by research

is significantly affected by explanatory conducted by (Mirza, 2012), stating that

variablesthat is simulatneaously showed by F economic growth provides positive effect,

statistic on significance standart of (  ) 0.01 with while poverty gives negative effect on HDI. In

value of 107.15. The result of equation of addition, (Hakim and Setiawan, 2013), also

household expenditure on health can be seen concludes that Gross regional domestic

completely in the Table. 2

product provides positive effect on HDI. This result is in line with the theory of

Table 2. Estimated result of equation parameter the circle of poverty, that the low society

of Household Expenditure for Health income will increase poverty. Poverty leads

Long

society to not be able to fulfill their needs

Perception

Short term term

Parameter Prob >[t] elasticity properly (including education and health). elasticity

Consequently, the low education and health

will affect their productivity in working. The

Income

low productivity then leads to low income,

IPM in the past 5.204085

hence poverty increase. Furthermore, poverty year

Total population 0.094973

will cause society to not be able to fulfill their

needs; and so on they will affect each other,

roatate in circle without end. It is essential to

Expenditure

for

have participation from all parties, who are

Health in the past

government and society to break this vicious year.

Fhit =107.15 Prob.F = 0.0001 Dw =1.812188 R2

circle of poverty together. It is expected that

government may increase social welfare and Sources: Result of output SAS/ETS promote Indonesian citizen by budget policy and regulation that is in accordance with

Household Exenditure for health is constitution mandate.

significantly affected by disposable income, HDI The improvements of society income

in the past year, total population, trend of time, will ecourage increase in household

and household expenditure for health in the past expenditure. The increase in household

year with a sgin that is suitable with hypothesis. expenditure (the incrsea in social welfare) will

In short term, 10% increase in disposable reduce poverty. The decline number on poor

incoome lead to the increase in household people will increase HDI. Increase in HDI is

expenditure for health by 1.2%. 10% increase in an indicator that there is social welfare. It can

total population also increases the household

be seen in Table 2, 3, and 4 describing the expenditure for health by 8.3%. In long term, 10% great effect of HDI on the increase in the

increase in disposable incoome lead to the household expenditure for health, education,

increase in household expenditure for health by and other consumption expenditures with

1.5%. 10% increase in total population also great response (elastic).

increases the household expenditure for health The result of equation of household

by 10.6%. The interesting result in Table 2 shows expenditure on health has determination

that HDI in the past year greatly effected (elastic)

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 423

household expenditure for health. Every 10% education by 7.3%. In a long term, 10% increase increase of HDI in the past year, will increase

in disposable income lead to household the household expenditure for health by

expenditure for education to be increased by 35.3%. In a long term, 10% increase in HDI in

1.7%. 10% increase in total population will also the past year will increase household

increase the household expenditure for expenditure for health by 44.8%. Based on

education by 10.6%.

equation 1 and 2, it can be concluded that there is interplay relationship between HDI

Table 3. Estimated result of equation parameter and household expenditure. This result is in

of Household Expenditure for Education line with the research conducted by (Pratowo,

2013), concluding that there is positive effect

Perception

Short term Long term

between non-food expenditure and HDI.

Variabel

Parameter Prob >[t] elasticity elasticity

The equation of household expenditure

0.12 for education has determination coefficient 0.17

(R 2 ) of 68%. Endogeneous variable in the

IPM in the 11.60882

equation of household expenditure for past year

education is significantly affected by

population Trend

explanatory varables that is simultaneously

showed by F statistic on significance standard

(  ) of 0.01 with value of 101.3.

Expenditure

for Education

Household Exenditure for educaton is in the past

Fhit =101.30 Prob.F = 0.0001 Dw =1.764153 R2 year.

significantly affected by disposable income,

HDI in te past year, total population, trend of Sources: Result of output SAS/ETS time, and household expenditure for education in the past year with a sign that is

Other household expenditure in this suitable with hypothesis. The result of

research includes all of household expenditures equation of household expenditure on

except for education and health. The equation of education can be seen completely in the

other household expenditure has determination Table. 3. It is the same with the equation of

coefficient (R 2 ) of 89.2%. %. Endogeneous household expenditure for health, HDI in the

variable in the equation of household past year provides elastic effect in increasing

expenditure for education is significantly household expenditure for education, and

affected by explanatory varables that is even the effect is more elastic. Every 10%

simultaneously showed by F statistic on increase in HDI in the past year will increase

significance standard (  ) of 0.01 with value of the household expenditure for education by

expenditure is the past year will increase household

64 %. In long term, 10% increase in HDI in

Other

household

significantly affected by disposable income, HDI expenditure for education by 92.2%.

in the past year, total population, trend of time, In shorth term, 10% increase in

and other household expenditure in the past year disposable income lead to household

with a sign that is suitable with hypothesis expenditure for education to be increased by

It is the same with the equation of 1.2%. 10% increase in total population will also

household expenditure for health and education, increase the household expenditure for

HDI in the past year provides elastic effect in

424 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

increasing other household expenditure. HDI (Gross Domestic Regional Product) income per increase means that society income more

capita, Human Development Index. In the same increases (social welfare). The increase in

case, this result is the same with research society income will boost the increase in

conducted by (Pangastuti, 2015), stating that household consumption. The result of

government expenditure for education provides equation of other household expenditure can

positive effect and significance of 1.118658 on HDI

be seen completely in Table.4 in the District/Municipality of Central Java. Meanwhile, government expenditure for health

Table 4. Estimated result of equation provides positive effect and significance of parameter of Other Household Expenditure

1.362280 on HDI in the District/Municipality of

Long

Central Java.

Perception

Short term term

The increase in Gross Domestic Regional

Variabel Parameter

Prob >[t] elasticity

elasticity

Intersep -11726.4

Product provides positive effect in increasing

Disposable 0.062317

0.09 0.10 disposable income. By the increase in income, the

Income IPM in the 149.1312

3.60 4.29 society is encouraged to increase their household

past year

expenditure for education, health, and other

expenditure. The increase in household

Trend 122.0132

expenditure (is an indication for the increase in

Other 0.161907

social welfare) is significant to reduce poverty.

Household Expenditure

When the number of poverty decline, then the

Fhit =395.32 Prob.F = 0.0001 Dw = 1.473909 R2

number of Human Development Index will

increase. Increase in HDI provides positive effect Sources: Result of output SAS/ETS, version in increasing household expenditure (see Table

2, 3, and 4) the increase in HDI indirectly also

provides positive effect in increasing tax revenue In shorth term, 10% increase in

and ecourage government to increase disposable income lead to other household

government expenditure, either for municipality expenditure to be increased by 0.9%. 10%

area (Table 5 and 6) or district area (Table 7 and increase in HDI in the past year will lead to

8) in Central Java. The impact of combination of other household expenditure to be increased policy of increase in education and health by 36%. 10% increase in total population will expenditure respectively is 100 billion IDR in the also increase other household expenditure by Municipality of Central Java on income per 9%. In long term, 10% increase in disposable capita, disposable income dan HDI can be seen income lead to other household expenditure

completely in Table 5.

to be increased by 1%. 10% increase in HDI in Table 5 describes that the increase in the past year will lead to other household education and health expenditure respectively is expenditure to be increased by 42.9%. 10% 100 billion on HDI in municipality of Central Java increase in total population will also increase leat the income per capita to be increased from other household expenditure by 10.8%.

million/person/year to 25.1424 The results show that the increase in

Disposable income education, health, and infrastructure provide

million/person/year.

increases from 7651.4 billion/year to 12721.5 positive impact in increasing regional output

JEJAK Journal of Economics and Policy Vol 10 (2) (2017: 412-428 425

billion/year. Menawhile, HDI increase from Bsed on the case in the municipality of 77.1588 to 80.5358 or increased by 4.38%.

Central Java, it can be concluded that the second simulation (Table 6) results better score

Table 5. First Simulation: Prediction of compared to the first simulation (Table 5). This simulation Combination of policy of increase

result shows that combination policy of increase in education and health expenditure

in education and infrastructure expenditure is respectively is 100 billion IDR in the

preferably to combination policy of increase in Municipality of Central Java.

education and health expenditure because it

Simulation

generates better performance improvements in

Variable Name

Basic

Score

income per capita, disposable income and HDI.

In the district area, simulation of increase Income per capita

Score

in education and health expenditure is (billion respectively of 100 billion in the districts of IDR/person/year)

Disposable income Central Java and it can be seen completely in (billion IDR/year)

Sources: Result of output SAS/ETS, version Table 7. Third Simulation: Prediction of

9.2 Policy Combination of Increase in Education Prediction of simulation Combination

and Health Expenditure respectively is 100 of policy of increase in education and health

billion in District of Central Java expenditure respectively is 100 billion IDR in

Variable Name

Basic Simulation

the Municipality of Central Java cause income

Score Score

per capita to increase from 15.1472 billion/year

Income per capita

to 25.2067 billion/year. Disposable income

(billion

increases from 7651.4 billion/year to 12753.8

10.2591 15.3144 billion/year. HDI increases from 77.1588 to

IDR/person/year)

Disposable

income

10281.5 80.5585 or increased by 4.41%, these results 15349.8

(billion IDR/year)

73.9883 75.7505 can be seen completely in Table 6.

HDI

Sources: Result of output SAS/ETS, version 9.2

Table 6. Second Simulation: Prediction Table 5 describes that the simulation of

of Policy Combination of Increase in increase ineducation and health expenditure,

Education and Health Expenditure which respectively is 100 billion in District of

respectively is 100 billion in Municipality Central Java can increase income per capita from

of Central Java.

million/person/year to 15.3144

Variable Name

Basic

Simulation

million/person/year.

Disposable income

Score

increases from 10281.5 billion/year to 15349.8

Income per capita

(billion

billion/year. HDI increases from 73.9883 to

IDR/person/year)

75.7505 or inceased by 2,38%

Disposable income

If the results in Table 5 are compared to the

(billion IDR/year)

results in Table 7, then with the same fiscal

HDI

stimulus, the impact of increased performance in Sources: Result of output SAS/ETS

the municipality is better than the district. This might happen because infrastructure and human

426 Niken Sulistyowati, et al., Impacts of Government and Household Expenditure

resources in the municipality are much better and health expenditure in District area of Central than the district.

Java.

The next simulation on prediction of policy combination of increase in education

CONCLUSION

and infrastructure expenditure which Human Development Index is significantly

respectively is 100 billion in the District of affected by income per capita and poverty. Even

Central Java can be seen in Table 8. tough its effect is relatively small (inelastic),

income per capita brings positive effect on HDI, Table 8. Fourth Simulation: Policy

while poverty brigs negative effect to HDI. In the combination of increase in education and

short term, every increase in income per capita infrastructure expenditure which respectively

and decline in poverty of 10%, then HDI will is 100 billion in the District of Central Java

increase 0,1%.

Variable Name

Basic

Simulation

Response on household expenditures for

Score

education, health, and other household

Income per capita

expenditure are elastic (provide great effect) on

(billion IDR/person/year)

HDI changes. Every 10% increase in HDI lead to

Disposable income

the increase in household expenditure for

(billion IDR/year)

education by 64%, household expenditure for

health increased by 35%, and other household Sources: Result of output SAS/ETS

expenditure increased by 36%. The policy combination of increase in

The result of simulation of increase in education and infrastrucure expenditure education and infrastructure expenditure

Impacts of Government and Household Expenditure on Human Development Index