IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Does Indonesia Pursue Sustainable Fiscal Policy?

Listed author(s):
  • Rudi Kurniawan

    ()

    (Department of Economics, Padjadjaran University)

In this paper, I examine the sustainability of Indonesian fiscal policy by looking at how the primary balance-to-GDP ratio has responded to variations of the debt-to-GDP ratio, as suggested by Bohn's (1998) Model Based Sustainability approach. This approach is motivated by dissatisfaction with most of the literature that use unit root and cointegration tests in combination with the intertemporal budget constraint. It is argued that unit root or cointegration tests have low power in rejection unit root from near unit root alternatives. Furthermore, Bohn (2005) shows that the consistency with the intertemporal budget constraint (IBC) is not a sufficient condition for debt stationary. It is possible to satisfy the IBC while simultaneously having a mildly explosive path of debt-to-GDP ratios. Using a data set covering the period 1990 – 2010 and controlling for measures of cyclical variations in GDP and temporary government expenditure, I find a significantly positive response of the primary balance-to-GDP ratio to variations in the debt-to-GDP ratio, and that response has been stable since 2000. Moreover, I also find that the debt-to-GDP ratio tends to be mean-reverting due to a nominal growth dividend. These results suggest that the government have significant and strong fiscal response to changes in debt-to-GDP ratio and that the stability of debt-to-GDP ratio is dependent on the growth rate of the economy.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://ceds.feb.unpad.ac.id/wopeds/201504.pdf
File Function: First version, 2015
Download Restriction: no

Paper provided by Department of Economics, Padjadjaran University in its series Working Papers in Economics and Development Studies (WoPEDS) with number 201504.

as
in new window

Length: 36 pages
Date of creation: Nov 2015
Date of revision: Nov 2015
Handle: RePEc:unp:wpaper:201504
Contact details of provider: Postal:
Jalan Cimandiri No.6, Bandung 40115

Phone: (062)022-4204510
Fax: (062)022-4204510
Web page: http://ceds.fe.unpad.ac.id
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Peter Wierts, 2007. "The sustainability of euro area debt: a re-assessment," DNB Working Papers 134, Netherlands Central Bank, Research Department.
  2. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-819, September.
  3. Mendoza, Enrique G. & Ostry, Jonathan D., 2008. "International evidence on fiscal solvency: Is fiscal policy "responsible"?," Journal of Monetary Economics, Elsevier, vol. 55(6), pages 1081-1093, September.
  4. Hal Hill, 2007. "The Indonesian Economy: Growth, Crisis And Recovery," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 52(02), pages 137-166.
  5. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-971, October.
  6. Mari PANGESTU, 2003. "The Indonesian Bank Crisis And Restructuring: Lessons And Implications For Other Developing Countries," G-24 Discussion Papers 23, United Nations Conference on Trade and Development.
  7. Piergallini Alessandro & Postigliola Michele, 2012. "Fiscal Policy and Public Debt Dynamics in Italy, 1861-2009," Rivista italiana degli economisti, Società editrice il Mulino, issue 3, pages 417-440.
  8. International Monetary Fund, 2010. "Post-Crisis Fiscal Policy Priorities for the ASEAN-5," IMF Working Papers 10/252, International Monetary Fund.
  9. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
  10. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
  11. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
  12. Jonathan David Ostry & Abdul d Abiad, 2005. "Primary Surpluses and sustainable Debt Levels in Emerging Market Countries," IMF Policy Discussion Papers 05/6, International Monetary Fund.
  13. Bettina Fincke & Alfred Greiner, 2010. "Do Governments in Developing Countries Pursue Sustainable Debt Policies? Empirical Evidence for Selected Countries in Africa and Latin America," Journal of Development Studies, Taylor & Francis Journals, vol. 46(4), pages 745-770.
  14. Quintos, Carmela E, 1995. "Sustainability of the Deficit Process with Structural Shifts," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(4), pages 409-417, October.
  15. Trehan, Bharat & Walsh, Carl E., 1988. "Common trends, the government's budget constraint, and revenue smoothing," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 425-444.
  16. Diego Valderrama, 2005. "Fiscal sustainability and contingent liabilities from recent credit expansions in South Korea and Thailand," Economic Review, Federal Reserve Bank of San Francisco, pages 29-41.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:unp:wpaper:201504. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Arief Anshory Yusuf)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.