The Economic Impacts of Government Spending Cut The Case of Indonesia

Haryo Kuncoro (), Daniel Pambudi () and Daniel Pambudi ()
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Haryo Kuncoro: Faculty of Economics State University of Jakarta Indonesia, Postal: ID
Daniel Pambudi: The Australian Bureau of Agricultural and Resource Economics and Sciences Department of Agriculture Australia, Postal: AU
Daniel Pambudi: The Australian Bureau of Agricultural and Resource Economics and Sciences Department of Agriculture Australia, Postal: AU

Journal of Advanced Research in Law and Economics, 2014, vol. 5, issue 2, 120-135

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

Date: 2014
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