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Title:	The effectiveness of fiscal policy in Indonesia
Authors:	Putri Bintusy Syathi (P47093)
Supervisor:	Zulkefly Abdul Karim, Assoc. Prof. Dr.
Keywords:	Fiscal policy -- Indonesia
Issue Date:	Sep-2018
Description:	This dissertation investigated the impact of fiscal policy shocks upon domestic variables in Indonesia economy. The motivations of this study evolved around the issue of the role of fiscal policy as a stabilization tool in the economy. Theoretically, the impacts of fiscal policy in an open economy country are less effective than those in closed economy ones. Hence, this study examined the role of fiscal policy in stabilizing the Indonesian economy especially in mitigating the adverse impact of external shocks. In addition, this study also investigates how the fiscal policy influences firms' decision for investment. To achieve the objective at macro-level analysis, an SVAR modelling framework is used to analyze the dynamic response of macroeconomic variables to fiscal policy and external shocks. In modelling the SVAR, the variables were classified into two blocks, namely foreign (world oil price and foreign interest rate) and domestic blocks (tax, expenditure, and interest rate as a policy variable and other macroeconomic variables; investment, GDP, inflation, and exchange rate). Specifically, the study found that the responses of investment and output to tax shocks was positive reflect that an increase in tax revenue results in an increase in investment and output. However, the inflation response to tax shocks showed a negative sign, reflecting the existence of automatic stabilizer. For expenditure, unfortunately the shocks had not shown a satisfying result since the response of investment and output to spending shock is negative meaning the crowding out effect exists. Furthermore, the implementation of fiscal policy during external shocks showed that the policy is effective in reducing the impact due to oil price and the foreign interest rate shocks. The implications of the findings suggest that at the macro level the enactment of fiscal policy especially government expenditure should be spent in a more productive sector to reduce the crowding out impact. The policy response to external shocks indicates the counter monetary policy intervention which strengthened the fiscal policy impact. Hence the use of fiscal policy in stabilizing the economy after an external shocks must be treated cautiously by recognizing the origin of the shocks since not all shocks managed to be stabilized by the policy (in this study fiscal policy is not effective in stabilizing the adverse impact of foreign interest rate shock). Next, for the firm-level analysis, this study used panel VAR modelling to analyze the relationship between fiscal policy instruments (corporate income tax and tax investment incentive) on firms' investment by controlling other variables such as the cost of capital and firms' liquidity. The main findings revealed that Likewise, the firm-level study found that investment response to corporate income tax shocks is positive, hence the policy works as the tax shield. However, the investment response to investment tax credit shock was negative for a short time before it became positive. At the micro level, the implementation of fiscal tools, i.e. corporate income tax and the investment tax credit need to be implemented simultaneously to cancel off the temporary negative impact of investment response due to the investment tax incentive shock. Nevertheless, investment incentive policy implementation is still important to stimulate firm's long term investment.,“Certification of Master's/Doctoral Thesis” is not available,Ph.D.
Pages:	138
Call Number:	HJ1374.S973 2018 tesis
Publisher:	UKM, Bangi
Appears in Collections:	Faculty of Economy and Management / Fakulti Ekonomi dan Pengurusan

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