Abstract: This study aims to identify the flypaper effect and the effects of financial balance transfer and Regional Own-source Revenue on regional expenditure of regencies and municipalities in East Java Province. The population of this study consists of regional expenditure data of 29 regencies and 9 municipalities in East Java Province collected by Statistics Indonesia (Biro Pusat Statistik/BPS) from 2005 to 2012. The writer conducted analysis on the data using Eviews 7. The findings of this study indicated that Regional Own-source Revenue, General Allocation Fund, and Specific Allocation Fund significantly affect regional expenditure and the flypaper effect occurs on regional expenditure of regencies and municipalities in East Java Province. This conditionis marked by regional spending as the response against the General Allocation Fund is higher than regional spending as the response against Regional Own-Source Revenue. Therefore, it can be concluded that the dependency level of the regions upon financial balance transferred from central government is still relatively high.