Fuel and Gas Subsidy Budget Realocation on Infrastructure Development Budget towards Indonesian Economic Growth and Macroeconomic Indicators
10 Pages Posted: 9 Apr 2020
Date Written: August 30, 2019
The government of the Republic of Indonesia has one policy which always gets the main attention from the government itself, researchers, politicians, as well as societies. The policy is the providing of fuel and gas subsidies. This policy aims to reduce the price of fuel and gas, which in turn has an impact on increasing the purchasing power of the people. This increase in purchasing power is expected to stimulate economic sector activities and subsequently be able to increase the country's economic growth. In 2015, based on the Presidential Regulation of the Republic of Indonesia Number 191 of 2014, the government imposed a reduction in the budget for fuel and gas subsidies. The budget is then allocated to other sectors, one of which is the infrastructure development budget. This is done by the government because infrastructure development is seen as more productive, which in the end will also be able to increase the country's economic growth.
This paper aims to analyze the impact of the fiscal policy on the reallocation of the fuel and gas subsidy budget to the infrastructure budget to national economic growth along with macroeconomic variables such as:
(i) the level of public consumption;
(ii) the level of investment;
(iii) level of government expenditure;
(iv) the level of import;
(v) the level of export;
(vi) level of government revenue;
(vii) level of employment; and
(viii) the level of real Gross Domestic Product.
The data used in this paper are 2010 Input-Output data as well as infrastructure development data for year 2012 until year 2016. The method uses in this paper is quantitative descriptive and uses the WAYANG model of Computable General Equilibrium (CGE) method and comparative-static simulation in processing data.
The results of this paper show the influence of fiscal policy implementation can be seen as follows:
(i) the level of public consumption does not change in the short term but increases in the long term;
(ii) there is an increase in investment in the short and long term;
(iii) a decrease in government spending in the short and long term;
(iv) a decline in imports in the short and long term;
(v) a decline in exports in the short and long term;
(vi) there is a decrease in government revenues from taxes in the short and long term;
(vii) there is a decline in short-term and long-term employment absorption;
(viii) there is an increase in real GDP in the short term by 0.225% and in the long term by 0.281%.
The policy implications show that the implementation of fiscal policies, in general, can increase national economic growth, even though shows a decline in several macroeconomic variables. These finding can be an input for policy makers to prepare the other policies which can support more effective and able to increase some of these macroeconomic variables.
Keywords: Fiscal Policy, Economic Growth, Budget Subsidize, Fuel and Gas, Input Output Analysis, Computing General Equilibrium
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