Assessing Fiscal Sustainability in Indonesia: Error Correction Mechanism Diagnostic

Gabriella Deby Laura; Rahmania Nur Chasanah; Nafisatul Faridah; Fitri Kartiasih

doi:10.29259/jep.v21i1.19624

Assessing Fiscal Sustainability in Indonesia: Error Correction Mechanism Diagnostic

Gabriella Deby Laura, Rahmania Nur Chasanah, Nafisatul Faridah, Fitri Kartiasih

Abstract

Indonesia's debt is increasing and is not controlled properly, which will result in a fiscal budget deficit. This study aims to determine the condition of fiscal sustainability in Indonesia by looking at the factors that affect the debt-to-GDP ratio in 2012 Quarter I to 2022 Quarter II. Fiscal sustainability can be seen from the debt-to-GDP ratio proxy variable and the independent variables used are the previous quarter's debt ratio, economic growth, inflation, and the exchange rate. This research is a qualitative type with a brief descriptive about the state of the debt ratio and the variables that influence it and quantitatively using the Error Correction Mechanism (ECM) using statistical software called EViews. The results show that in the long term the debt-to-GDP ratio in Indonesia is significantly influenced by the previous quarter's debt ratio, economic growth, inflation, and the exchange rate. Meanwhile, in the short term, changes in the debt to GDP ratio are significantly influenced by changes in the debt ratio in the previous quarter, changes in economic growth, and changes in inflation.

Keywords

Fiscal Sustainability, Debt, ECM, Indonesia

Full Text:

PDF

References

Adiyanta, F. S. (2020). Fleksibilitas Pajak sebagai Instrumen Kebijaksanaan Fiskal untuk Mengantisipasi Krisis Ekonomi sebagai Akibat Dampak Pandemi Covid-19. Administrative Law and Governance Journal, 3(1), 162–181. https://doi.org/10.14710/alj.v3i1.162-181

Agyeman, G., Sakyi, D., & Fosu Oteng-Abayie, E. (2022). External Debt and Economic Growth in Selected sub-Saharan African countries: The Role of Capital Flight. Research in Globalization, 5(May), 100091. https://doi.org/10.1016/j.resglo.2022.100091

Adwendi, S. J., & Kartiasih, F. (2016). Penggunaan Error Correction Mechanism dalam Analisis Pengaruh Investasi Langsung Luar Negeri Terhadap Pertumbuhan Ekonomi Indonesia. Statistika: Journal of Theoretical Statistics and Its Applications, 16(1), 17–27. https://doi.org/10.29313/jstat.v16i1.1767

Afonso, A., & Alves, J. (2023). European Journal of Political Economy Does government spending efficiency improve fiscal sustainability ?. European Journal of Political Economy, 102403. https://doi.org/10.1016/j.ejpoleco.2023.102403

Afonso, A., & Jalles, J. T. (2014). A Longer-Run Perspective on Fiscal Sustainability. Empirica, 41(4), 821–847. https://doi.org/10.1007/s10663-013-9240-0

Basorudin, M. (2019). Analisis Kesinambungan Fiskal Indonesia Pasca Krisis Ekonomi. Jurnal Ekonomi Pembangunan, 17(2), 59–70. https://doi.org/10.29259/jep.v17i2.9792

Bisogno, M., Cuadrado-Ballesteros, B., & García-Sánchez, I. M. (2017). Financial Sustainability In Local Governments: Definition, Measurement, And Determinants. Financial sustainability in public administration: Exploring the concept of financial health, 57-83. https://doi.org/10.1007/978-3-319-57962-7_3

Brady, G. L., & Magazzino, C. (2018). Fiscal Sustainability in the EU. Atlantic Economic Journal, 46(3), 297–311. https://doi.org/10.1007/s11293-018-9588-4

Buckle, R. A., & Cruickshank, A. A. (2014). The Requirements for Fiscal Sustainability in New Zealand. New Zealand Economic Papers, 48(2), 111–128. https://doi.org/10.1080/00779954.2013.874393

Bui, D.-T. (2019). Fiscal Sustainability in Developing Asia – New Evidence from Panel Correlated Common Effect Model. Journal of Asian Business and Economic Studies, 27(1), 66–80. https://doi.org/10.1108/jabes-01-2019-0001

Cahyaningrum, H., Nadzeva, G., Ramadhani, N. T., & Nurdiansyah, D. H. (2022). Analisis Faktor – Faktor yang Mempengaruhi Utang Luar Negeri di Indonesia Tahun 2015-2019. Wacana Ekonomi (Jurnal Ekonomi, Bisnis Dan Akuntansi), 21(1), 39–54. https://doi.org/10.22225/we.21.1.2022.39-54

Cevik, S., & Nanda, V. (2020). Riding The Storm: Fiscal Sustainability in the Caribbean. International Review of Applied Economics, 34(3), 384–399. https://doi.org/10.1080/02692171.2020.1749241

Checherita-Westphal, C., Hughes Hallett, A., & Rother, P. (2014). Fiscal Sustainability Using Growth-Maximizing Debt Targets. Applied Economics, 46(6), 638–647. https://doi.org/10.1080/00036846.2013.861590

Choi, S., Furceri, D., Loungani, P., Mishra, S., & Poplawski-Ribeiro, M. (2018). Oil Prices and Inflation Dynamics: Evidence from Advanced and Developing Economies. Journal of International Money and Finance, 82, 71–96. https://doi.org/10.1016/j.jimonfin.2017.12.004

Chua, C. L., Perera, N., & Suardi, S. (2021). Fiscal Regimes and Fiscal Sustainability In Sri Lanka. Applied Economics, 53(21), 2384–2397. https://doi.org/10.1080/00036846.2020.1859456

Corsetti, G., Dedola, L., Jaroci?ski, M., Ma?kowiak, B., & Schmidt, S. (2019). Macroeconomic stabilization, monetary-fiscal interactions, and Europe’s monetary union. European Journal of Political Economy, 57(June 2018), 22–33. https://doi.org/10.1016/j.ejpoleco.2018.07.001

Drakes, L., Thomas, C., Craigwell, R., & Greenidge, K. (2012). Threshold Effects of Sovereign Debt: Evidence from the Caribbean. IMF Working Paper No. 12/157.

Hazmi, Y., Nazamuddin, Masbar, R., & Abdullah, S. (2019). Analysis of Subsidies, Inflation, Exchange Rates, BI Rates on Fiscal Sustainability in Indonesia. International Journal of Social Science and Economic Research, 4(3), 2049–2074.

?mrohoro?lu, S., Kitao, S., & Yamada, T. (2019). Fiscal sustainability in Japan: What to Tackle? Journal of the Economics of Ageing, 14(August). https://doi.org/10.1016/j.jeoa.2019.100205

Insukindro. (2018). The Effect of Twin Shock on Fiscal Sustainability in Indonesia. Economics and Sociology, 11(1), 75–84. https://doi.org/10.14254/2071-789X.2018/11-1/5

Kamiguchi, A., & Tamai, T. (2023). Public Investment, National Debt, and Economic Growth: The Role of Debt Finance Under Dynamic Inefficiency. Journal of Macroeconomics, 77(May), 103535. https://doi.org/10.1016/j.jmacro.2023.103535

Kilian, L., & Zhou, X. (2022). The Impact of Rising Oil Prices on U.S. Inflation And Inflation Expectations in 2020–23. Energy Economics, 113(September), 106228. https://doi.org/10.1016/j.eneco.2022.106228

Ko, H. (2020). Measuring Fiscal Sustainability in the Welfare State: Fiscal Space as Fiscal Sustainability. International Economics and Economic Policy, 17(2), 531–554. https://doi.org/10.1007/s10368-019-00453-2

Muqorrobin, Y. (2015). Factors Influencing Economic Growth In Indonesia: Error Correction Model (ECM). Jurnal Ekonomi dan Studi Pembangunan, 16(1), 1-13.

Nakatani, R. (2021). Fiscal Rules for Natural Disaster? and Climate Change?Prone Small States. Sustainability (Switzerland), 13(6), 3135. https://doi.org/10.3390/su13063135

Pamungkas, R. H. (2017). Estimation of Indonesia’s Fiscal Reaction Function. Kajian Ekonomi Dan Keuangan, 20(1), 1–18. https://doi.org/10.31685/kek.v20i1.178

Perkins, D. H., Radalet, S., Lindauer, D. L., & Block, S. A. (2017). Economics of Development. New York: W. W. Norton & Company.

Pradhan, K. (2019). Analytical framework for fiscal sustainability: A review. Review of Development and Change, 24(1), 100-122. https://doi.org/10.1177/0972266119845951

Rahman, Y. A., Rahmayani, D., & Hapsoro, B. B. (2023). Public Debt Sustainability in Indonesia after Financial Crisis and During COVID-19 Pandemic. Planning, 18(1), 229-235.

Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a Time of Debt. NBER Working Paper No. 15639.

Reiss, L. (2014). Fiscal vulnerability using growth-maximizing debt targets. Applied Economics, 46(6), 648–649. https://doi.org/10.1080/00036846.2013.861591

Roy, A. (2023). Nexus between economic growth, external debt, oil price, and remittances in India: New insight from novel DARDL simulations. Resources Policy, 83(February), 103742. https://doi.org/10.1016/j.resourpol.2023.103742

Rusdiyantoro, I., & Simanjuntak, R. A. (2022). Kesinambungan Fiskal Indonesia Pada Masa Pandemi Covid-19. Jurnal Pajak dan Keuangan Negara, 4(1), 20–29. https://doi.org/10.31092/jpkn.v4i1.1706

Sakuragawa, M., & Hosono, K. (2011). Fiscal sustainability in Japan. Journal of the Japanese and International Economies, 25(4), 434–446. https://doi.org/10.1016/j.jjie.2011.10.002

?en, H., & Kaya, A. (2015). Is fiscal policy really sustainable in Turkey? A reexamination. International Journal of Sustainable Economy, 7(1), 1-29. https://doi.org/10.1504/ijse.2015.066398

Simanungkalit, E.F.Br. (2020). Pengaruh Inflasi terhadap Pertumbuhan Ekonomi di Indonesia. Journal of Management (SME’s), 13(3), 327-340. https://doi.org/10.35508/jom.v13i3.3311

Sriyana, J., & Hakim, A. (2017). Balance Sheet Approach for Fiscal Sustainability in Indonesia. International Journal of Economics and Financial Issues, 7(1), 68–72.

Todaro, M. P., & Smith, S. C. (2014). Economic Development (12 ed.). New York: Pearson.

Wei, G., Asghar, N., Ahmad, I., Yin, W., Abbas, Q., Rahman, S., & Farooq, F. (2021). Economic Growth, Fiscal Imbalance, and Environmental Sustainability: What is Desirable and Undesirable for Developing Economies? Environmental Science and Pollution Research, 28(37), 52283–52294. https://doi.org/10.1007/s11356-021-14379-3

Zhang, W. (2022). China’s Government Spending and Global Inflation Dynamics: The Role Of The Oil Price Channel. Energy Economics, 110(March), 105993. https://doi.org/10.1016/j.eneco.2022.105993

DOI: https://doi.org/10.29259/jep.v21i1.19624

Refbacks

There are currently no refbacks.

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Jurnal Ekonomi Pembangunan
Jalan Raya Palembang-Prabumulih Km. 32
Jurusan Ekonomi Pembangunan, Fakultas Ekonomi Universitas Sriwijaya
Indralaya, Sumatera Selatan, Indonesia
Email: jep.unsri@gmail.com, Tel/Fax : (0711)580231

p-ISSN: 1829-5843, e-ISSN 2685-0788