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The Behavior Of Fiscal Policy In Indonesia In Response To Economic Cycles

Author

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  • ABDUROHMAN

    (Indonesian Ministry of Finance, Indonesia)

  • BUDY P. RESOSUDARMO

    (#x2020;Arndt-Corden Department of Economics, Crawford School of Economics and Government, The Australian National University, 9 Fellows Rd, Commbs Bld., Canberra, Australia)

Abstract

The current general wisdom regarding fiscal policy in response to fluctuations in economic cycles is to adopt countercyclical strategies: contractive during a boom to avoid overheating the economy and expansive during a recession to stimulate economic activity. This paper attempts to investigate the practical behavior of fiscal policy in Indonesia in response to economic cycles to establish whether it follows general fiscal wisdom (countercyclical) or amplifies the cycle (procyclical). An error correction model (ECM) and an alternative model to deal with the possible endogeneity problem are utilized. This paper shows that fiscal policy in Indonesia tends to be procyclical. Observations of some other ASEAN countries, namely Malaysia, the Philippines, Singapore and Thailand, indicate that Singapore could be the only country in ASEAN that is able to implement a countercyclical fiscal policy.

Suggested Citation

  • Abdurohman & Budy P. Resosudarmo, 2017. "The Behavior Of Fiscal Policy In Indonesia In Response To Economic Cycles," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(02), pages 377-401, June.
    • Handle: RePEc:wsi:serxxx:v:62:y:2017:i:02:n:s0217590816500041
    DOI: 10.1142/S0217590816500041
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    Cited by:

    1. Haryo Kuncoro, 2018. "The impact of government consumption on the private expenditures in developing country: the case of Indonesia," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(1), pages 1-16, January.
    2. Kuncoro Haryo, 2016. "The Credibility of Fiscal Rules Policy and Business Cycle Volatility," Scientific Annals of Economics and Business, Sciendo, vol. 63(2), pages 209-224, June.
    3. Haryo Kuncoro, 2020. "Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 19-42.
    4. 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.

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