Analysis of the Influence of Local Government Financial Performance on Economic Growth with Capital Expenditure Allocation as an Intervening Variable in the Regency/City of Sumatera Utara Province

This study aims to examine the effect of financial performance on economic growth with capital expenditure allocation as an intervening variable in Regency/City Governments in Sumatra Utara Province. The study sample consisted of 33 regencies/cities in Sumatra Utara Province. The financial performance variables measured were efficiency, effectiveness, independence, and fiscal decentralization. Data were analyzed using path analysis using the EViews program based on secondary data in the form of panel data sourced from Regency/City Local Government Budget data in Sumatra Utara Province. The results of the study indicate that efficiency has a positive and significant effect on economic growth, while effectiveness has a positive and significant effect on economic growth. The independence variable has a negative and insignificant effect on economic growth, and the fiscal decentralization variable has a positive and insignificant effect on economic growth. For the indirect effect, the capital expenditure allocation variable only mediates the efficiency variable on economic growth. In contrast, the effectiveness, independence, and fiscal decentralization variables cannot be mediated by capital expenditure allocation on economic growth. Keywords: efficiency, effectiveness, independence, fiscal decentralization, capital expenditure allocation, and economic growth.