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The Impact of Fiscal Policy on Income Distribution and Poverty: A Computable General Equilibrium Approach for Indonesia

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Abstract

The paper seeks to quantitatively measure the impact of fiscal policy on income distribution and poverty in Indonesia using WAYANG, the CGE model for Indonesian economy. We find that scenarios for fiscal expansion significantly influence income distribution and poverty. Fiscal expansion mainly benefits urban households and non-labour rural households - basically, the wealthiest segments of the society. We have are several explanations. First, factors of production owned by these segments allowed them to reap the most benefits from fiscal expansions. Second, these households are least affected by price increases due to their consumption structure. Finally, we find that, in real terms, the Indonesia's taxation system burdens poorer households more than richer ones.

Suggested Citation

  • Yose Rizal Damuri & Ari A. Perdana, 2003. "The Impact of Fiscal Policy on Income Distribution and Poverty: A Computable General Equilibrium Approach for Indonesia," CSIS Economics Working Paper Series WPE068, Centre for Strategic and International Studies, Jakarta, Indonesia.
  • Handle: RePEc:sis:wpecon:wpe068
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    File URL: http://www.csis.or.id/working_paper_file/27/wpe068.pdf
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    Keywords

    Indonesia; income distribution; poverty; economic modelling; fiscal policy;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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