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Does Unemployment Moderate the Effect of Government Expenditure on Poverty? A Cross-Provinces Data Evidence from Indonesia

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Listed:
  • Khairul Amri
  • Raja Masbar
  • B. S. Nazamuddin
  • Hasdi Aimon

Abstract

Our study aims to investigate the effect of government expenditure on the poverty rate and detect the moderating role of the unemployment rate in the functional relationship between the two variables. Using a panel data set of 24 provinces in Indonesia during 2005-2018, we use the dynamic model of the Generalized Methods of Moment to estimate the functional relationships. Our findings discovered that government expenditure on goods, services, and capital significantly reduces poverty. Conversely, grant and social aid expenditures have a positive and significant effect. The unemployment rate substantially increases the poverty rate and moderates the impact of the three types of public spending on the poverty rate. The higher the unemployment rate, the smaller the poverty reduction effect of government expenditure. These findings imply that the government budgetary allocation for a particular spending component should consider the unemployment rate as the primary consideration. It is due to the effectiveness of each expenditure group in reducing poverty differing at the various level of the unemployment rate.

Suggested Citation

  • Khairul Amri & Raja Masbar & B. S. Nazamuddin & Hasdi Aimon, 2024. "Does Unemployment Moderate the Effect of Government Expenditure on Poverty? A Cross-Provinces Data Evidence from Indonesia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 92-113.
    • Handle: RePEc:bas:econst:y:2024:i:2:p:92-113
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    More about this item

    JEL classification:

    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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