The Impact of Intergovernmental Transfers on Infrastructure Capital Expenditure: The Mediating Role of Fixed Asset Value

This study examines the complex relationship between intergovernmental transfers and infrastructure capital expenditure, incorporating fixed asset value as a mediating variable. Diverging from traditional approaches that posit a direct relationship between fiscal transfers and capital spending, we employ path analysis to uncover indirect mechanisms operating through asset accumulation and valuation. Drawing on empirical evidence from 23 districts/municipalities in Aceh Province, Indonesia over the period 2008-2021, our findings reveal that while intergovernmental transfers exert a positive and significant direct effect on infrastructure capital expenditure (β = 0.412, p < 0.001), the mediating role of fixed asset value proves negative and statistically insignificant (indirect effect = -0.023, p = 0.284). These results indicate that infrastructure spending allocation decisions are predominantly driven by the direct availability of transfer funds (explaining 63.64% of variance) rather than by consideration of accumulated asset values.