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Does the sustainable fiscal policy foster its credibility?

Economic Journal of Emerging Markets

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Title Does the sustainable fiscal policy foster its credibility?
 
Creator Kuncoro, Haryo; Faculty of Economics
State University of Jakarta
 
Subject Economics
Deficit, Fiscal Rules, Credibility, Debt Sustainability, ARDL
JEL: E62, H62, H68
 
Description This paper examines the credibility and sustainability of fiscal policy in the case of Indonesia. The standard model of fiscal sustainability is modified to accommodate the credibility aspect. The empirical estimates are done by employing several aspects of the time series econometric literature including unit roots, degree of integration, co-integration, and stability tests. Based on the deficit forecast error reaction function, we estimate the quarterly data over the period 2001-2013 relying on the autoregressive distributed lag model. The results present that the deficit rule policy is not credible while central government's debt is unsustainable. The coexistence of non-credibility and unsustainability of fiscal policy in Indonesia is also closely related to the world oil prices and trade openness fluctuations. Under these strong external circumstances instability, the fiscal authority credibility plays an important role in conducting fiscal rule policy which operates primarily through a signalling effect.
 
Publisher Universitas Islam Indonesia
 
Contributor —
 
Date 2017-03-31
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
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Format application/pdf
 
Identifier http://journal.uii.ac.id/index.php/JEP/article/view/6178
10.20885/ejem.vol9.iss1.art9
 
Source Economic Journal of Emerging Markets; Volume 9 Issue 1, 2017; 84-97
2502-180X
2086-3128
 
Language eng
 
Relation http://journal.uii.ac.id/index.php/JEP/article/view/6178/6713
 
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Rights Copyright (c) 2017 Economic Journal of Emerging Markets
http://creativecommons.org/licenses/by-sa/4.0