Long run fiscal disequilibrium. An Indonesian case
Long run fiscal disequilibrium. An Indonesian case

Summary/Abstract: This study attempts to provide an evidence of fiscal disequilibrium in Indonesia. The model considers elaborating government expenditure model. For this purpose, this research employs an error correction model to test the existence of fiscal equilibrium. In this case, the model captures output, population, and tax revenue as the determinant variables of government expenditure for the period 1970-2012. The short run model shows that population and tax revenue are statistically significant in affecting government expenditure. Meanwhile, changes in tax revenue have negative effect to government expenditure growth which potentially creates fiscal gap. Furthermore, this finding reveals the existence of fiscal disequilibrium in Indonesia. Furthermore, these findings recommend that government likely considers increasing tax ratio rather than reviewing government size.

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