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Bhutan has been facing with underutilization of capital budget over the past many years. Therefore, this research aims to examine the factors influencing Local Government (LG) underutilization of capital budget in Bhutan. Such influencing factors are also investigated according to LG unit characteristics; including size, age, type of services, location, source of fund, and size of capital budget. The research was undertaken at two stages; an initial exploratory research was conducted to capture pertinent issues related to the underutilization of capital budget. The population of the research were 229 finance personnel in LG units across the country consisting of 20 districts, 4 municipalities and 205 sub-districts. A questionnaire using Likert scale to measure influential level was designed and pre-tested. The data were collected through online survey on the total population. Descriptive statistics including frequencies, arithmetic means and standard deviation were used in the analysis. Survey results showed the most influential factors on underutilization as budget allotted for additional work by central ministries at the end of fiscal year in the preparatory stage, late approval of additional budgets by the budget office in the approval stage, delay of work progress due to road blocks in the execution stage, and lack of monitoring and evaluation of budget performance in the LG units in evaluation stage. The results revealed. The research attempted to determine the influence of factors on the local government unit’s characteristics. The mean difference among influential factors by LG units’ characteristics was found for all types of characteristics and also for all stages. These implied the influence of factors on the LG unit characteristics. Considering each characteristic, the highest mean may imply the most influence and on the other hand, the lowest mean may imply the least influence that factors influencing capital budget underutilization were different among LG units with different size, age, type of services, location, sources of fund, and size of capital budget. This research is first of its kind in Bhutan and it will lead to further study, contributing to more academic knowledge and practical contributions.
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