Impact of Government Expenditure, Human Capital and Regional Economic Development Performance on People Welfare in Bali Province, Indonesia

Abstract Many countries in the world implement the delegation of authority or decentralization of governance in order to maximize the function of public service and improve social welfare. Similarity, Indonesia has implemented decentralization since 2001. Bali is one the province in Indonesia with HDI (2012) ranked 14th out of 33 provinces, but it does not indicate the condition of all areas evenly. This research, focuses on fiscal decentralization, aims to analyze the impact of government spending on human capital; the impact of government spending and human capital on performance of regional development; and the impact of government spending, human capital and performance of regional development toward the welfare on the people in the province of Bali. The data were analyzed by using PLS, and the processed data are data panel of nine district/municipalities in Bali Province for 12 years since the decentralization. The results show that government spending, human capital and performance of regional development , both directly and indirectly have positive and significant impact on the welfare on the community. Given the importance of the mediating role of human capital the government is advised to focus government on areas directly related to effort to improve human capital. Keywords: government spending, human capital, regional economic development, people welfare