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The cyclicality of government expenditure in developing country: the case of Indonesia

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  • Haryo Kuncoro

    (Faculty of Economics, State University of Jakarta, Jakarta, Indonesia.)

Abstract

This paper analyzes the cyclicality and the relationship between government expenditure and output of Indonesia, 1999-2012 using Johansen co-integration test and the error correction model. The results confirm that in the short-run the government expenditure reveals counter-cyclical but pro-cyclical in the longrun. Output and government expenditure are co-integrated and it implies the existence of long-term relationship. The value of short-run elasticity coefficient for government expenditure is relatively high. In contrast, the long-run elasticity coefficient is lower and statistically greater than unity confirming the voracity hypothesis. Furthermore, there is no significant difference of government spending in good and bad times.

Suggested Citation

  • Haryo Kuncoro, 2014. "The cyclicality of government expenditure in developing country: the case of Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 6(1), pages 23-37, April.
    • Handle: RePEc:uii:journl:v:6:y:2014:i:1:p:23-37
    DOI: http://dx.doi.org/10.20885/ejem.vol6.iss1.art3
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    More about this item

    Keywords

    Government; Expenditure; Cyclicality; Voracity; Elasticity;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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