The Impact of Fiscal Reform on Indonesian Macroeconomy: A CGE Framework

Herbert W. V. Hasudungan () and Sulthon Sabaruddin
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Herbert W. V. Hasudungan: University of Dundee

Central European Journal of Economic Modelling and Econometrics, 2016, vol. 8, issue 3, 181-202

Abstract: This paper aims to investigate the impact of exogenous fiscal policies on the Indonesian main macroeconomic indicators and the implications on different institutions and sectors in the economy using the static Computable General Equilibrium (CGE) analysis. Three simulations are conducted in order to analyze the expansion of exogenous public spending. The results revealed that the increase of government expenditure on goods under the adjusted government deficit and balance of payment generates the highest improvement on Indonesian GDP but resulting an increase in government deficit. In contrast, under financing scheme of either lowering subsidy rates across activities or increasing the ad valorem tax rates would result in lower improvement on Indonesian GDP. This is because it directly escalates the cost of production and thus increases the prices of final goods purchased by the households which result in a fall in their real consumption and in turn eventually could lead to a decrease in national income.

Keywords: fiscal; tax rates; subsidy rates; Indonesia; CGE analysis (search for similar items in EconPapers)
JEL-codes: C68 D58 E60 E62 F41 F43 H20 H30 H60 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:psc:journl:v:8:y:2016:i:3:p:181-202

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