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

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  • Haryo Kuncoro

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.
    • Handle: RePEc:uii:journl:v:6:y:2014:i:1:p:23-37:id:3864
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    File URL: https://journal.uii.ac.id/JEP/article/view/3864/3435
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