The Relationship between Capital Expenditure, Income Inequality, Total Population and Economic Growth Post-Implementation of Local Autonomy in Indonesia

This study aimed to analyze the relationship between capital expenditure, income inequality, total population and economic growth in 38 districts/cities in East Java Province, Indonesia during the period of 2011-2015. Panel data with fixed effect was employed as the analysis technique. The findings prove the existence of a positive relationship between capital expenditure and economic growth in the district/city. The relationship between income inequality and economic growth was in a negative correlation. While there was no significant relationship between total population and economic growth in East Java Province. Therefore, by referring to the results, we recommend the government to increase its allocation of capital expenditure, both spatial and sub-sectoral. Moreover, the government also need to expand its fiscal redistribution policy on public services needed by the citizens (education, health, and transportation). These improvements could eventually contribute to the achievement of income equality and economic growth in regional economy.