The Economic Impacts of Government Spending Cut: The Case of Indonesia

  • Haryo KUNCORO Faculty of Economics, State University of Jakarta, Indonesia
  • Daniel PAMBUDI The Australian Bureau of Agricultural and Resource Economics and Sciences, Department of Agriculture, Australia
  • Daniel PAMBUDI The Australian Bureau of Agricultural and Resource Economics and Sciences, Department of Agriculture, Australia

Abstract

This paper attempts to analyze the impact of fiscal policy on the macroeconomic performance in Indonesia. Using CGE EMERALD (Computable General Equilibrium Model with Economic Regional Analysis Dimensions), we simulate the impact of 1 percent deficit reduction (i.e. government expenditures cut) on macroeconomic variables both in national and regional levels. The overall simulations show that the decrease in government expenditures has positive impacts on real private investment expenditures and export volume as well as aggregate capital stock. Also, the decrease in government expenditures reduces import volume higher than that of export. In relation to employment, the negative impact is marginally only on the non-tradable sectors. Those findings imply that not all government expenditures are productive in nature. Hence, they perform the feasibility of government policy to reduce the government spending and conduct balance budget as well as counter-cyclical policies in the future not only to maintain economic growth in general but also balance of payment and fiscal sustainability in particular.

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Published
2017-03-23
How to Cite
KUNCORO, Haryo; PAMBUDI, Daniel; PAMBUDI, Daniel. The Economic Impacts of Government Spending Cut: The Case of Indonesia. Journal of Advanced Research in Law and Economics, [S.l.], v. 5, n. 2, p. 120-135, mar. 2017. ISSN 2068-696X. Available at: <https://journals.aserspublishing.eu/jarle/article/view/882>. Date accessed: 20 apr. 2024.