The Causal Relationship between Government Revenue and Government Spending: The Case of Indonesia

Mas Firman Wardhana Mulya Praja, Professor Yoichi Okita

2012 | Tesis | S2 Magister Ek.Pembangunan

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Government revenue and government expenditure nexus have been crucial to be identified in order to propose the appropriate fiscal policy toward budgetary deficit problem. This study investigates the causal relationship between government revenue and expenditure in Indonesia in the period 1983–2010. We use the data in terms of both real and ratio. By using these data forms, the findings show that in the short run, the nexus differs for the entire period. This might be triggered by the change of government behavior in dealing with deficits. The results are also different when the data are divided into two sub periods. Before 1998, the causality comes from government expenditure to its revenue, while after 1998 the result is consistent with tax-and-spend hypothesis. Additionally, using the data of a whole period, there is a finding that shows the conformity with spend-and-tax hypothesis of the nexus between government revenue and expenditure in the long run.

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