Article

 

Assessing economic growth and fiscal policy in Indonesia (p.53-71)

by

Rifki Ismal, University of Paramadina, Indonesia

Keywords : Wagner, Keynes, Fiscal

JEL classification : E12, E62

Abstract

This paper attempts to analyze the economic development and fiscal policy in Indonesia. Especially, it investigates whether Wagner and/or Keynes law(s) of economic development apply in the country and what variables determine the economic growth and fiscal policies. Technically, the paper uses econometric model called Autoregressive Distributed Lag model and Vector Auto Regression model to analyze both short and long run periods. The main finding is that both Wagner and Keynes law(s) occur in the Indonesian economy. Particularly, economic growth is influenced by government expenditures variables, namely employment expenditures, good expenditures and non tax income. Meanwhile, government expenditures are determined by exports of oil, imports and payment of debts. As such, the paper suggests that policy makers use employment expenditures as the fiscal policy variable while imports and exports of oil are the aggregate economy policy variables.