THE EFFECT OF FISCAL POLICY ON ECONOMIC GROWTH CASE STUDY IN INDONESIA - Repositori Universitas Andalas

Appendix‫اا‬1.4‫ا‬Multicollinearity‫ا‬Test................................................................‫ااا‬71
Appendix‫اا‬1.5‫ا‬Normality‫ا‬Test...........................................................................‫ااا‬73

CHAPTER 1
INTRODUCTION
1.1.1

Background
Economic‫ا‬development‫ا‬is‫ا‬an‫ا‬absolute‫ا‬phase‫ا‬that‫ا‬should‫ا‬be‫ا‬done‫ا‬by‫ا‬every‫ا‬nation‫ا‬to

improve‫ا‬prosperity.‫ا‬The‫ا‬implementation‫ا‬of‫ا‬economic‫ا‬development‫ا‬is‫ا‬never‫ا‬apart‫ا‬from‫ا‬the

increase ‫ ا‬in ‫ ا‬income ‫ ا‬or ‫ ا‬we ‫ ا‬called ‫ ا‬economic ‫ ا‬growth. ‫ ا‬Economic ‫ ا‬growth ‫ ا‬and ‫ ا‬economic
development ‫ا‬are‫ ا‬almost‫ ا‬same ‫ ا‬but ‫ ا‬they‫ ا‬are ‫ ا‬fundamentally ‫ ا‬different. ‫ ا‬Economic ‫ ا‬growth ‫ ا‬is
increase‫ا‬in‫ا‬average‫ا‬income‫ا‬of‫ا‬an‫ا‬economy,‫ا‬while‫ا‬economic‫ا‬development‫ا‬is‫ا‬the‫ا‬increase‫ا‬in
welfare‫ا‬of‫ا‬people‫ا‬of‫ا‬that‫ا‬economy.
Economic‫ا‬Growth‫اا‬is‫ا‬an‫ا‬increase‫ا‬in‫ا‬a‫ا‬country's‫ا‬real‫ا‬level‫ا‬of‫ا‬national‫ا‬output‫ا‬which‫ا‬can
be ‫ ا‬caused ‫ ا‬by ‫ ا‬an ‫ ا‬increase ‫ ا‬in ‫ ا‬the ‫ ا‬quality ‫ا‬and ‫ا‬quantity ‫ ا‬of ‫ ا‬resources, ‫ا‬an‫ ا‬improvement ‫ا‬in
technology‫ ا‬or‫ا‬in‫ا‬another‫ا‬way‫ا‬an‫ا‬increase‫ا‬in‫ا‬the‫ا‬value‫ا‬of‫ا‬goods‫ا‬and‫ا‬services‫ا‬produced‫ا‬by
every‫ا‬sector‫ا‬of‫ا‬the‫ا‬economy.‫ا‬
Economic‫ا‬Growth‫ا‬can‫ا‬be‫ا‬measured‫ا‬by‫ا‬an‫ا‬increase‫ا‬in‫ا‬a‫ا‬country's‫ا‬GDP‫(ا‬gross‫ا‬domestic

product).‫“ا‬Economic‫ا‬growth‫ا‬is‫ا‬a‫ا‬process,‫ا‬not‫ا‬an‫ا‬economic‫ا‬picture‫ا‬in‫ا‬a‫ا‬given‫ا‬period,‫ا‬there‫ا‬are
development‫ا‬or‫ا‬changes‫ا‬and‫ا‬use‫ا‬of‫ا‬time”‫(ا‬Boediono,‫ا‬1992).
Indonesia’s ‫ ا‬economic ‫ ا‬growth ‫ ا‬has ‫ ا‬been‫ ا‬up ‫ ا‬and ‫ ا‬down ‫ ا‬in ‫ ا‬over ‫ ا‬recent ‫ ا‬decades, ‫ ا‬in
accordance ‫ ا‬with ‫ ا‬the ‫ ا‬conditions ‫ ا‬of‫ ا‬the ‫ ا‬world ‫ ا‬economy. ‫ ا‬National ‫ ا‬income ‫ا‬is ‫ ا‬a ‫ ا‬measure ‫ ا‬of
economic ‫ ا‬growth, ‫ ا‬which ‫ ا‬is‫ ا‬showed ‫ا‬by‫ ا‬fluctuating ‫ ا‬growth. ‫ ا‬The ‫ ا‬economic ‫ ا‬condition ‫ ا‬of
Indonesia ‫ ا‬as ‫ ا‬a ‫ ا‬developing ‫ ا‬country ‫ ا‬has ‫ ا‬not ‫ ا‬reached ‫ ا‬steady ‫ ا‬state ‫ ا‬conditions ‫ ا‬in ‫ ا‬which ‫ ا‬an
economy‫ا‬is‫ا‬already‫ا‬in‫ا‬a‫ا‬stable‫ا‬and‫ا‬less‫ا‬susceptible‫ا‬to‫ا‬shocks.
Indonesia’s‫ا‬economic‫ا‬growth‫ا‬is‫ا‬influenced‫ا‬by‫ا‬the‫ا‬various‫ا‬shocks.‫ا‬Shocks‫ا‬that‫ا‬make
Indonesian’s‫ا‬economy‫ا‬is‫ا‬disrupted‫ا‬economic‫ا‬crisis‫ا‬of‫ا‬1998,‫ا‬namely‫ا‬inflation‫ا‬78‫ا‬%‫ا‬and‫ا‬GDP
decreased‫ا‬by‫ا‬approximately‫ا‬11‫ا‬percent.‫ا‬In‫ا‬2008‫ا‬the‫ا‬world‫ا‬economy‫ا‬was‫ا‬in‫ا‬recession‫ا‬or
global‫ا‬economic‫ا‬recession,‫ا‬triggered‫ا‬by‫ا‬financial‫ا‬turmoil‫ا‬in‫ا‬the‫ا‬united‫ا‬states.‫ا‬This‫ا‬financial
crisis‫ا‬hit‫ا‬countries‫ا‬around‫ا‬the‫ا‬world‫ا‬includes‫ا‬Indonesia.‫ا‬The‫ا‬impact‫ا‬of‫ا‬this‫ا‬crisis‫ا‬in‫ا‬Indonesia
was‫ا‬marked‫ا‬by‫ا‬the‫ا‬side‫ا‬of‫ا‬state‫ا‬pending,‫ا‬state‫ا‬spending‫ا‬on‫ا‬state‫ا‬budget‫ا‬allocation‫ا‬in‫ا‬2009
was‫ا‬estimated‫ا‬to‫ا‬increase‫ا‬by‫ا‬Rp‫ا‬51,8‫ا‬trillion,‫ا‬compare‫ا‬to‫ا‬the‫ا‬realization‫ا‬of‫ا‬the‫ا‬state‫ا‬budget‫ا‬of
2008‫ا‬with‫ا‬total‫ا‬expenditures‫ا‬set‫ا‬at‫ا‬Rp‫ا‬1,037.1‫ا‬trillion‫(ا‬19.5‫ا‬percent‫ا‬of‫ا‬GDP),‫ا‬driven‫ا‬by‫ا‬an
increase ‫ ا‬in ‫ ا‬central ‫ ا‬government ‫ ا‬spending ‫ ا‬for ‫ ا‬Rp ‫ ا‬23.74 ‫ ا‬trillion ‫ ا‬and ‫ ا‬the ‫ ا‬allocation ‫ ا‬of
expenditure‫ا‬to‫ا‬the‫ا‬region‫ا‬of‫ا‬28.06‫ا‬trillion‫ا‬when‫ا‬compared‫ا‬with‫ا‬the‫ا‬realization‫ا‬of‫ا‬the‫ا‬2008

budget‫ا‬the‫ا‬government‫ا‬has‫ا‬been‫ا‬able‫ا‬to‫ا‬anticipate‫ا‬the‫ا‬situation,‫ا‬so‫ا‬that‫ا‬economic‫ا‬growth‫ا‬in
Indonesia‫ا‬is‫ا‬relatively‫ا‬safe,‫ا‬around‫ا‬6,38%‫(ا‬Data‫ا‬BPS,‫ا‬2008).

‫ا‬Indonesia‫ا‬is‫ا‬better‫ا‬equipped‫ا‬to‫ا‬survive‫ا‬in‫ا‬this‫ا‬time‫ا‬of‫ا‬crisis‫ا‬because‫ا‬of‫ا‬the‫ا‬experience
learned‫ا‬from‫ا‬previous‫ا‬crisis.‫ا‬A‫ا‬country‫ا‬must‫ا‬has‫ ا‬a‫ا‬government‫ا‬that‫ا‬serves‫ا‬as‫ا‬a‫ا‬economic
dampening ‫ ا‬and ‫ ا‬political ‫ ا‬turmoil ‫ ا‬both ‫ ا‬from ‫ ا‬domestic ‫ ا‬and ‫ ا‬abroad. ‫ ا‬Dampers ‫ ا‬are ‫ ا‬able ‫ ا‬to
stabilize‫ا‬the‫ا‬turmoil‫ا‬in‫ا‬the‫ا‬sense‫ا‬of‫ا‬a‫ا‬more‫ا‬conducive‫ا‬situation‫ا‬through‫ا‬various‫ا‬policies.
Government‫ا‬is‫ا‬a‫ا‬very‫ا‬important‫ا‬actor‫ا‬in‫ا‬the‫ا‬economy‫ا‬of‫ا‬a‫ا‬country.‫ا‬An‫ا‬economic‫ا‬activity‫ا‬will
be‫ا‬optimal‫ا‬if‫ا‬there‫ا‬is‫ا‬a‫ا‬government‫ا‬activity‫ا‬there‫ا‬in.
Economic‫ا‬growth‫ا‬in‫ا‬Indonesia‫ا‬is‫ا‬still‫ا‬at‫ا‬the‫ا‬development‫ا‬stage.‫ا‬Government‫ا‬spending
on‫ا‬Government‫ا‬activities‫ا‬that‫ا‬include‫ا‬spending‫ا‬in‫ا‬the‫ا‬political‫ا‬sphere‫ا‬as‫ا‬well‫ا‬as‫ا‬in‫ا‬the‫ا‬field‫ا‬of
economy‫ا‬where‫ا‬everything‫ا‬has‫ا‬planned‫ا‬in‫ا‬the‫ا‬budget‫ا‬revenue‫ا‬and‫ا‬expenditure‫ا‬of‫ا‬the‫ا‬state
budget.‫ا‬Managing‫ا‬sources‫ا‬of‫ا‬revenue‫ا‬and‫ا‬government‫ا‬spending,‫ا‬government‫ا‬can‫ا‬make‫ا‬a
policy‫ا‬to‫ا‬increase‫ا‬economic‫ا‬growth‫ا‬such‫ا‬as‫ا‬Fiscal‫ا‬Policy.
Fiscal‫ا‬Policy‫ا‬is‫ا‬the‫ا‬government‫ا‬policy‫ا‬which‫ا‬included‫ ا‬government‫ا‬expenditure‫ا‬and
taxes‫ا‬in‫ا‬collaboration‫ا‬with‫ا‬the‫ا‬monetary‫ا‬policy‫ا‬whose‫ا‬objective‫ا‬was‫ا‬to‫ا‬accelerate‫ا‬economic
growth. ‫ ا ا‬Government ‫ ا‬expenditure ‫ ا‬consists ‫ ا‬of ‫ ا‬recurrent ‫ ا‬expenditure ‫ ا‬and ‫ ا‬development
expenditure.
Recurrent‫ا‬expenditure‫ا‬is‫ا‬expenditure‫ا‬that‫ا‬used‫ا‬for‫ا‬maintenance‫ا‬and‫ا‬operation‫ا‬of‫ا‬a
government ‫ ا‬that ‫ ا‬includes ‫ ا‬spending ‫ ا‬on ‫ا‬personnel, ‫ ا‬goods ‫ ا‬expenditures, ‫ا‬interest ‫ ا‬payments,
subsidies‫ا‬and‫ا‬other‫ا‬routine‫ا‬expenses.‫ا‬Through‫ا‬routine ‫ا‬expenses,‫ا‬the‫ا‬government‫ا‬can‫ا‬carry
out ‫ ا‬its ‫ ا‬mission ‫ ا‬in ‫ ا‬order ‫ ا‬to ‫ ا‬maintain ‫ ا‬the ‫ ا‬smooth ‫ ا‬implementation ‫ ا‬of ‫ ا‬the ‫ ا‬government, ‫ ا‬the
operations ‫ ا‬and ‫ ا‬maintenance‫ ا‬of ‫ ا‬state ‫ ا‬assets, ‫ ا‬Government's ‫ ا‬responsibility ‫ ا‬to ‫ا‬third ‫ ا‬parties,

protection ‫ ا‬of ‫ ا‬the ‫ ا‬poor ‫ ا‬and ‫ ا‬underprivileged ‫ ا‬and ‫ ا‬maintain ‫ ا‬economic ‫ ا‬stability
(Mangkoesoebroto,‫ا‬1994).
Development ‫ ا‬expenditure ‫ ا‬is ‫ ا‬expenditure ‫ ا‬incurred ‫ ا‬to ‫ ا‬finance ‫ ا‬development ‫ ا‬in ‫ ا‬the
economic, ‫ ا‬social, ‫ ا‬and ‫ ا‬public ‫ ا‬and ‫ ا‬that ‫ ا‬is ‫ ا‬to ‫ ا‬raise ‫ ا‬capital ‫ ا‬in ‫ ا‬the ‫ ا‬form ‫ ا‬of ‫ ا‬community
development‫ا‬both‫ا‬physical‫ا‬and‫ا‬non-physical‫ا‬infrastructure‫ا‬is‫ا‬implemented‫ا‬in‫ا‬a‫ا‬given‫ا‬period.
Budget‫ا‬physical‫ا‬and‫ا‬non-physical‫ا‬development‫ا‬is‫ا‬always‫ا‬adjusted‫ا‬to‫ا‬the‫ا‬funds‫ا‬mobilized.

The‫ا‬funds‫ا‬are‫ا‬allocated‫ا‬to‫ا‬the‫ا‬various‫ا‬fields‫ا‬in‫ا‬accordance‫ا‬with‫ا‬the‫ا‬priorities‫ا‬that‫ا‬have‫ا‬been
planned.‫ا‬The‫ا‬role‫ا‬of‫ا‬the‫ا‬development‫ا‬budget‫ا‬is‫ا‬more‫ا‬emphasis‫ا‬on‫ا‬efforts‫ا‬to‫ا‬create‫ا‬a‫ا‬stable
and‫ا‬conducive‫ا‬conditions‫ا‬for‫ا‬the‫ا‬continuity‫ا‬of‫ا‬the‫ا‬process‫ا‬of‫ا‬economic‫ا‬recovery‫ا‬by‫ا‬providing
a‫ا‬stimulus‫ا‬to‫ا‬the‫ا‬growth‫ا‬of‫ا‬the‫ا‬national‫ا‬economy.‫ا‬In‫ا‬connection‫ا‬with‫ا‬the‫ا‬management‫ا‬of‫ا‬the
overall ‫ ا‬state ‫ ا‬budget ‫ ا‬with ‫ ا‬limited ‫ ا‬financial ‫ ا‬resources ‫ ا‬available, ‫ ا‬the ‫ ا‬achievement ‫ ا‬of
development‫ا‬goals‫ا‬should‫ا‬be‫ا‬as‫ا‬optimal‫ا‬as‫ا‬possible‫(ا‬Nota‫ا‬Keuangan‫ا‬dan‫ا‬APBN,‫ا‬2004).
Taxes‫ ا‬have‫ ا‬a ‫ ا‬very ‫ ا‬important ‫ ا‬role‫ ا‬in ‫ ا‬the‫ ا‬life ‫ ا‬of ‫ ا‬the ‫ ا‬state. ‫ ا‬Particularly‫ ا‬in ‫ ا‬the
implementation ‫ ا‬of ‫ ا‬development ‫ ا‬because ‫ ا‬the ‫ ا‬taxes ‫ ا‬a ‫ ا‬source ‫ ا‬of ‫ ا‬state‫ ا‬revenue‫ ا‬to ‫ ا‬fund‫ ا‬all
expenses‫ا‬including‫ا‬the‫ا‬expenses‫ا‬of‫ا‬government.‫ا‬Whether‫ا‬it's‫ا‬for‫ا‬recurrent‫ا‬expenditures‫ا‬and
development‫ا‬expenditures.
According‫ا‬to‫ا‬Waluyo‫(ا‬2006),‫ا‬high‫ا‬economic‫ا‬growth‫ا‬will‫ا‬increase‫ا‬the‫ا‬revenue‫ا‬of‫ا‬the
government‫ا‬of‫ا‬taxes‫(ا‬VAT‫ا‬and‫ا‬income‫ا‬tax)‫ا‬as‫ا‬well‫ا‬as‫ا‬providing‫ا‬employment‫ا‬and‫ا‬earnings‫ا‬or
saving‫ا‬foreign‫ا‬exchange.

Since ‫ ا‬the ‫ ا‬purpose ‫ ا‬of‫ ا‬taxation‫ ا‬and‫ ا‬government ‫ ا‬expenditure,‫ ا‬both ‫ ا‬recurrent ‫ ا‬and
development‫ا‬are‫ا‬to‫ا‬support‫ا‬national‫ا‬economic‫ا‬activity‫ا‬in‫ا‬maintaining‫ا‬the‫ا‬momentum‫ا‬of‫ا‬high
economic‫ا‬growth,‫ا‬and‫ا‬improve‫ا‬the‫ا‬welfare‫ا‬of‫ا‬the‫ا‬whole‫ا‬people‫ا‬of‫ا‬Indonesia.‫ا‬There‫ا‬fore‫ا‬the
role‫ ا‬of‫ا‬government‫ ا‬in‫ ا‬the‫ا‬field‫ا‬offiscal‫ ا‬policy‫ ا‬to‫ ا‬accelerate‫ ا‬economic‫ ا‬growth,‫ا‬the‫ا‬authors
tried‫ا‬to‫ا‬examine‫اا‬how‫ا‬the‫ا‬effect‫ا‬of‫ا‬fiscal‫ا‬policy‫ا‬on‫ا‬economic‫ا‬growth,‫ا‬in‫ا‬Indonesia.In‫ا‬this‫ا‬case
the‫ا‬government‫ا‬fiscal‫ا‬policy‫ا‬are‫ا‬government‫ا‬expenditure‫ا‬and‫ا‬taxes.
Based‫ا‬on‫ا‬the‫ا‬above‫ا‬assumptions,‫ا‬Fiscal‫ا‬policy‫ا‬is‫ا‬a‫ا‬government‫ا‬policy‫ا‬can‫ا‬impact‫ا‬of
activities‫ا‬against‫ا‬the‫ا‬government‫ا‬in‫ا‬running‫ا‬in‫ا‬the‫ا‬field‫ا‬of‫ا‬the‫ا‬economy‫ا‬in‫ا‬indonesia.‫اا‬to‫ا‬the
authors‫ا‬are‫ا‬interested‫ا‬in‫ا‬doing‫ا‬research‫ا‬to‫ا‬take‫ا‬the‫ا‬title‫ا‬of‫ا‬
“The Effect Of Fiscal Policy On Economic Growth : Case Study In Indonesia”.

1.2 Research Question

Based‫ا‬on‫ا‬the‫ا‬above‫ا‬explanation,‫ا‬the‫ا‬issues‫ا‬to‫ا‬be‫ا‬analyzed‫ا‬in‫ا‬this‫ا‬study‫ا‬are:

1. How ‫ ا‬does ‫ ا‬government ‫ا‬recurrent ‫ ا‬expenditure ‫ ا‬influence ‫ ا‬economic ‫ ا‬growth ‫ ا‬in

Indonesia?
2. How ‫ ا‬does ‫ ا‬government ‫ ا‬development ‫ ا‬expenditure ‫ ا‬influence ‫ ا‬economic ‫ ا‬growth ‫ ا‬in
Indonesia?

3. How‫ا‬does‫ا‬taxes‫ا‬influence‫ا‬economic‫ا‬growth‫ا‬in‫ا‬Indonesia?

1.3 Research objectives

In‫ا‬accordance‫ا‬with‫ا‬the‫ا‬above‫ا‬problems‫ا‬the‫ا‬purpose‫ا‬of‫ا‬this‫ا‬study‫ا‬were‫ا‬to:
1. To‫ا‬examine‫ا‬the‫ا‬effect‫ا‬of‫ا‬government ‫ا‬recurrent‫ا‬expenditure‫ا‬on‫ا‬economic‫ا‬growth‫ا‬in

Indonesia;
2. To‫ا‬examine‫ا‬the‫ا‬effect‫ا‬of‫ا‬government‫ا‬development‫ا‬expenditure‫ا‬on‫ا‬economic‫ا‬growth

in‫ا‬Indonesia;
3. To‫ا‬examine‫ا‬the‫ا‬effect‫ا‬of‫ا‬taxes‫ا‬on‫ا‬economic‫ا‬growth‫ا‬in‫ا‬Indonesia.
1.4 Research Advantage

The‫ا‬advantages of‫ا‬this‫ا‬research‫ا‬are:
1. For ‫ ا‬I ‫ ا‬and ‫ ا‬myself, ‫ ا‬to ‫ ا‬improve ‫ ا‬my ‫ ا‬ability ‫ ا‬in ‫ ا‬writing ‫ ا‬report ‫ ا‬and ‫ ا‬doing ‫ ا‬research,

especially‫ا‬in‫ا‬monetary‫ا‬economics,‫ا‬particularly‫ا‬fiscal‫ا‬policy.
2. For‫ا‬government‫ا‬as‫ا‬input‫ا‬for‫ا‬fiscal‫ا‬policy.
3. As‫ا‬a‫ا‬reference‫ا‬for‫ا‬other‫ا‬researcher‫ا‬who‫ا‬are‫ا‬interested‫ا‬to‫ا‬study‫ا‬in‫ا‬the‫ا‬same‫ا‬field‫ا‬with

the‫ا‬approach‫ا‬ad‫ا‬scope‫ا‬are‫ا‬different.