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E D I S I 0 2 T A H U N X V I I 2 0 1 1 four criteria: 1 timing; 2 target; 3 implementation; and 4
multiplier effect. This study is divided systematically as follows: The first part
describes the background of this study. The second discusses the theoretical debates associated to the fiscal stimulus policy.
The third section explains briefly about the fiscal policy package issued by the government. The fourth section describes the
evalution of the fiscal stimulus using the four criteria. The last section outlines conclusions from this study.
II. LITERATURE REVIEW
The world seemed turning to the left as the role of the government in the economy has gotten higher. Even
governments around the world today agreed to issue a fiscal policy package as the countercyclical action to raise the
economy from the downfall, the debate related to the role of government and its effectiveness has not yet been finished.
There are still pros and cons with the fiscal stimulus. From the pros side, if we consider the recent global financial crisis
with the collapse of financial markets, declining world trades and production capacities, it is difficult for a country to expect
stable contribution of economic activities from investment and export. In this case, the role of government through fiscal policy
appears as the reliable choice. The choice of fiscal stimulus is also considering the narrowness of the monetary policy space
in addressing the collapsed financial markets. Even so, in order to make fiscal stimulus work well, it should be “Timely,
Temporary, and Targeted” Furman, 2008. In this regard, fiscal stimulus must be precisely in time, target, and as well as
temporary.
Meanwhile, from the cons side, there are other arguments related to the Ricardian Equivalence theory and the fear of a
crowding out effect. More specifically, Feldstein 2009 said that one of the reasons of fiscal stimulus ineffectiveness is the
time lag between the decision to conduct and its realization. Time factor as required previously is difficult to meet. As a
result, the fiscal stimulus can lose the momentum. It influences the economy after the peak of the recession. The bad effect is
causing additional unintended demands in the economy which has already begun to grow.
Regardless of the existing pros and cons, previous research show that the effectiveness of fiscal stimulus may vary depending on
many factors. Fiscal stimulus policy is successful in one country, but not necessarily produces similar results in other countries.
It was showed by Ilzetzki, Mendoza, and Vegh 2009 in their research. First, in developing countries, the impact of the
increasing of government spending to boost output is lower and not durable compared to developed countries. Second, the level
of exchange rate flexibility is a determined variable for fiscal policy multiplier effect. Countries with a flexible exchange rate
regime have lower multiplier effect rather than countries with fixed exchange rate regime. Third, the level of openness of the
country measured by exports plus imports in proportion to GDP is also a critical variable. The more open the economy,
the lower effectiveness of fiscal policy. Last, other factor that influences the effectiveness of fiscal policy is the level of the
country’s debt. In countries with high debt ratios, an increase in output driven by fiscal stimulus tends to less effective compared
to countries with low debt ratios.
In addition, Tang, Liu and Cheung 2010 investigated the effectiveness of fiscal policy in five countries of Association
of Southeast Asian Nations ASEAN: Indonesia, Malaysia, Philippines, Singapore and Thailand. By using a structural
vector autoregression VAR model, government spending is found to have weak and largely insignificant impact on output,
while taxes are found to have outcomes contrary to conventional theory. Extended study using a time-varying VAR model
reveals the impact of taxes on output mainly reflect heightened concerns over public finances amid the Asian financial crisis
and the recent global financial crisis.
III. FISCAL STIMULUS PACKAGE
