Where the Investment Went: Operating Expenditure Across 482 District Budgets, 2017 to 2024

Abstract

When a government spends less on investment, the money does not disappear; it moves to another line of the budget. This article follows it. Across a balanced panel of 482 Indonesian district-level governments observed annually from 2017 to 2024, the capital share of total expenditure fell by 4.72 percentage points, from 21.87 to 17.15 per cent, and the personnel share fell by a further 2.66 points. Over the same eight-year period the goods and services share rose by 5.19 points, from 24.06 to 29.25 per cent, which is very nearly the whole of what the capital line lost. The substitution has a second property that the aggregate figures conceal. As the operating line grew it became more uniform across jurisdictions, its coefficient of variation falling from 0.262 to 0.217, while the capital line it replaced became far less uniform, its coefficient rising from 0.269 to 0.484. Districts converged on a common operating pattern while diverging on investment. The article argues that a compositional shift of this kind is a change in what local government does rather than a temporary adjustment to a passing fiscal constraint, and that the capital and operating lines should be monitored as a pair rather than separately, since movement in one is largely movement into the other.