Are Monetary and Fiscal Policies Effective in Controlling Budget Deficits?
Article Sidebar
Published
Dec 20, 2024
Main Article Content
Abstract
The state budget's countercyclical policy and government revenue imbalance to support government expenses caused Indonesia to experience a budget deficit for years. Understanding the correlation between monetary and fiscal policies helps policy makers formulate effective strategies to control and manage budget deficits. The research’s novelty is the complexity variable, which consists of three variable classifications. The first is monetary policy ( interest rates and money supply), the second is fiscal policy (government revenue and expenses), and the third is macroeconomic variables: economic growth, inflation, and exchange rate. All data is processed using the VAR/VECM in EVIEWS 9. The finding is that fiscal policy consists of controlling revenue and expenses, giving 37.6% contribution; monetary policy consists of the number of broad money and BI Rate give 7.6% contribution; macroeconomic factor consists of exchange rate, inflation and economic growth, giving contribution 41.6% while the effect of budget deficit itself has contribution 13.2%. The result of Granger Causality show that government revenue, economic growth and BI rate has a causality impact to budget deficit. Controlling those three variables will directly impact the budget deficit.
Article Details
How to Cite
Rachmawaty, R., Suteja, J., & Hermawan, A. (2024). Are Monetary and Fiscal Policies Effective in Controlling Budget Deficits?. Indonesian Treasury Review: Jurnal Perbendaharaan, Keuangan Negara Dan Kebijakan Publik, 9(4), 257-266. https://doi.org/https://doi.org/10.33105/itrev.v9i4.1059
Section
Articles
Copyright notice can be accessed here
References
Afonso, A., Alves, J., & Balhote, R. (2019). Interactions between monetary and fiscal policies. Journal of Applied Economics, 22(1), 131–150. https://doi.org/10.1080/15140326.2019.1583309
Becker, J. G., Gersbach, H., & Grimm, O. R. (2010). Debt-sensitive majority rules. CEPR Discussion Paper No. 7860. London, UK: Centre for Economic Policy Research. Available at: http://www.cepr.org/active/publications/discussion_papers/ dp.php?dpno=7860
Brzozowski, M., & Siwiska-Gorzelak, J. (2010). The impact of fiscal rules on fiscal policy volatility. Journal of Applied Economics, 13(2), 205–231
Damodar, Gujarati. (2012). Econometric by Examples (2nd ed). New York: Palgrave Macmillan
Demopoulos, G. D., Katsimbris, G. M., & Miller, S. M. (1987). Monetary policy and central-bank financing of government budget deficits. A cross-country comparison. European Economic Review, 31(5), 1023–1050. https://doi.org/10.1016/S0014-2921(87)80003-X
Epaphra, M. (2017). Analysis of budget deficits and macroeconomic fundamentals : A VAR-VECM approach. 30(4). https://doi.org/10.22367/jem.2017.30.02
Gujarati, Damodar N dan Dawn C. Porter. (2012). Dasar-dasar Ekonometrika. Raden Carlos Mangunsong [penerjemah]. Penerbit Erlangga. Jakarta
Hans, A., & Gr, P. (2017). Ac ce pt cr t. https://doi.org/10.1016/j.jebo.2017.09.019
Husriah (2020). Pengaruh Defisit Anggaran Pendapatan Dan Belanja Negara Terhadap Pertumbuhan Ekonomi Di Indonesia. Jurnal Economix Volume 8 Nomor 2 Desember 2020. 8, 57–68.
https://www.theguardian.com/us-news/2023/may/31/debt-ceiling-final-vote-house-congress. retrieved 14th July, 2023
https://www.bbc.com/indonesia/articles/c51k9y4lnp5o. retrieved 14th July, 2023
Kerimu, O., Kemboi, I. K., & Onganya, D. O. (2022). Effect of Selected Macroeconomic Variables on Budget Deficit in Kenya. 5(11), 3237–3249. https://doi.org/10.47191/jefms/v5-i11-13
Krause, Michael U., Lubik ,Thomas A. & Rhodes, Karl,.(2021). MMT and Government Finance: You Can't Always Get What You Want. Economic Brief , April April 2021, No. 21-12 available at:https://www.richmondfed.org/publications/research/economic_brief/2021/eb_21-12
Loo, Andrew,.(2020). Budget Deficit. Corporate Finance Institute. available at:https://corporatefinanceinstitute.com/resources/economics/budget-deficit/
Marimuthu, M., Khan, H., & Bangash, R. (2021). Is the Fiscal Deficit of ASEAN Alarming ? Evidence from Fiscal Deficit Consequences and Contribution towards Sustainable Economic Growth.
Mawejje, J., & Odhiambo, N. M. (2020). The determinants of fiscal deficits: a survey of literature. International Review of Economics, 67(3), 403–417. https://doi.org/10.1007/s12232-020-00348-8
Nayab, H. (2015). The Relationship between Budget Deficit and Economic Growth of Pakistan. 5(11), 79–85.
Nawawi, A. (2021). Analisis Respon Belanja Apbd Terhadap Transfer Tidak Bersyarat Dari Pemerintah Pusat: Studi Kasus Seluruh Kabupaten/Kota Di Provinsi Jawa Barat, Jawa Tengah, Jawa Timur, Banten, Dan Daerah Istimewa Yogyakarta Tahun 2018-2020. Jurnal Anggaran Dan Keuangan Negara Indonesia, 3(1), 41.
Ngo, M. N., & Nguyen, L. D. (2020). The role of economics, politics and institutions on budget deficit in ASEAN countries. Journal of Asian Finance, Economics and Business, 7(9), 251–261. https://doi.org/10.13106/JAFEB.2020.VOL7.NO9.251
Orji, A. (2015). Dynamics of Budget Deficit and Macroeconomic Fundamentals : Further Evidence from Nigeria. 5(5), 31–42. https://doi.org/10.6007/IJARBSS/v5-i5/1590
Perdana, M. N. A. (2021). Analisis Fenomena Defisit Anggaran Dan Defisit Transaksi Berjalan Di Indonesia (1990-2019). Diponegoro Journal of Economics, 10, 1.
Policy, F., Countries, D., Before, A. A., Author, F. C., Gomes, C., & Fl, S. (2016). Ac ce p te d us ip t. https://doi.org/10.1016/j.qref.2016.04.013
Pontoh, W. (2017). The Capital Structure: Is Debt just a Policy or Requirement? European Research Studies Journal, 20(2A), 128-139
Riffin, Amzul., Feryanto. (2021), Analisis Time Series Model VAR-VECM (Working Paper). Economic Management Faculty, IPB University, Indonesia.
Saliba, C. (2013). Occasional Papers on Islands and Small States The role of monetary policy in the economic recovery following the 2008-2009 global financial crisis with special reference to small states. Centre for Small State Studies, 2008.
Syamsurijal, C. A., Sugandi, Y. S., & Sumaryana, A. (2023). Is The Automatic Stabilizer Policy Effective In Combating An Economic Recession ? A Case Study Of The Indonesian State Budget. Bulletin of Monetary Economics and Banking, Special Issue 2023, https://doi.org/10.21098/bemp.v26i0.2456
Silva, C. G., and Vieira, F. V., (2016). Monetary and Fiscal Policy in Advanced and Developing Countries: An Analysis Before and After the Financial Crisis, Quarterly Review of Economics and Finance, http://dx.doi.org/10.1016/j.qref.2016.04.013
Becker, J. G., Gersbach, H., & Grimm, O. R. (2010). Debt-sensitive majority rules. CEPR Discussion Paper No. 7860. London, UK: Centre for Economic Policy Research. Available at: http://www.cepr.org/active/publications/discussion_papers/ dp.php?dpno=7860
Brzozowski, M., & Siwiska-Gorzelak, J. (2010). The impact of fiscal rules on fiscal policy volatility. Journal of Applied Economics, 13(2), 205–231
Damodar, Gujarati. (2012). Econometric by Examples (2nd ed). New York: Palgrave Macmillan
Demopoulos, G. D., Katsimbris, G. M., & Miller, S. M. (1987). Monetary policy and central-bank financing of government budget deficits. A cross-country comparison. European Economic Review, 31(5), 1023–1050. https://doi.org/10.1016/S0014-2921(87)80003-X
Epaphra, M. (2017). Analysis of budget deficits and macroeconomic fundamentals : A VAR-VECM approach. 30(4). https://doi.org/10.22367/jem.2017.30.02
Gujarati, Damodar N dan Dawn C. Porter. (2012). Dasar-dasar Ekonometrika. Raden Carlos Mangunsong [penerjemah]. Penerbit Erlangga. Jakarta
Hans, A., & Gr, P. (2017). Ac ce pt cr t. https://doi.org/10.1016/j.jebo.2017.09.019
Husriah (2020). Pengaruh Defisit Anggaran Pendapatan Dan Belanja Negara Terhadap Pertumbuhan Ekonomi Di Indonesia. Jurnal Economix Volume 8 Nomor 2 Desember 2020. 8, 57–68.
https://www.theguardian.com/us-news/2023/may/31/debt-ceiling-final-vote-house-congress. retrieved 14th July, 2023
https://www.bbc.com/indonesia/articles/c51k9y4lnp5o. retrieved 14th July, 2023
Kerimu, O., Kemboi, I. K., & Onganya, D. O. (2022). Effect of Selected Macroeconomic Variables on Budget Deficit in Kenya. 5(11), 3237–3249. https://doi.org/10.47191/jefms/v5-i11-13
Krause, Michael U., Lubik ,Thomas A. & Rhodes, Karl,.(2021). MMT and Government Finance: You Can't Always Get What You Want. Economic Brief , April April 2021, No. 21-12 available at:https://www.richmondfed.org/publications/research/economic_brief/2021/eb_21-12
Loo, Andrew,.(2020). Budget Deficit. Corporate Finance Institute. available at:https://corporatefinanceinstitute.com/resources/economics/budget-deficit/
Marimuthu, M., Khan, H., & Bangash, R. (2021). Is the Fiscal Deficit of ASEAN Alarming ? Evidence from Fiscal Deficit Consequences and Contribution towards Sustainable Economic Growth.
Mawejje, J., & Odhiambo, N. M. (2020). The determinants of fiscal deficits: a survey of literature. International Review of Economics, 67(3), 403–417. https://doi.org/10.1007/s12232-020-00348-8
Nayab, H. (2015). The Relationship between Budget Deficit and Economic Growth of Pakistan. 5(11), 79–85.
Nawawi, A. (2021). Analisis Respon Belanja Apbd Terhadap Transfer Tidak Bersyarat Dari Pemerintah Pusat: Studi Kasus Seluruh Kabupaten/Kota Di Provinsi Jawa Barat, Jawa Tengah, Jawa Timur, Banten, Dan Daerah Istimewa Yogyakarta Tahun 2018-2020. Jurnal Anggaran Dan Keuangan Negara Indonesia, 3(1), 41.
Ngo, M. N., & Nguyen, L. D. (2020). The role of economics, politics and institutions on budget deficit in ASEAN countries. Journal of Asian Finance, Economics and Business, 7(9), 251–261. https://doi.org/10.13106/JAFEB.2020.VOL7.NO9.251
Orji, A. (2015). Dynamics of Budget Deficit and Macroeconomic Fundamentals : Further Evidence from Nigeria. 5(5), 31–42. https://doi.org/10.6007/IJARBSS/v5-i5/1590
Perdana, M. N. A. (2021). Analisis Fenomena Defisit Anggaran Dan Defisit Transaksi Berjalan Di Indonesia (1990-2019). Diponegoro Journal of Economics, 10, 1.
Policy, F., Countries, D., Before, A. A., Author, F. C., Gomes, C., & Fl, S. (2016). Ac ce p te d us ip t. https://doi.org/10.1016/j.qref.2016.04.013
Pontoh, W. (2017). The Capital Structure: Is Debt just a Policy or Requirement? European Research Studies Journal, 20(2A), 128-139
Riffin, Amzul., Feryanto. (2021), Analisis Time Series Model VAR-VECM (Working Paper). Economic Management Faculty, IPB University, Indonesia.
Saliba, C. (2013). Occasional Papers on Islands and Small States The role of monetary policy in the economic recovery following the 2008-2009 global financial crisis with special reference to small states. Centre for Small State Studies, 2008.
Syamsurijal, C. A., Sugandi, Y. S., & Sumaryana, A. (2023). Is The Automatic Stabilizer Policy Effective In Combating An Economic Recession ? A Case Study Of The Indonesian State Budget. Bulletin of Monetary Economics and Banking, Special Issue 2023, https://doi.org/10.21098/bemp.v26i0.2456
Silva, C. G., and Vieira, F. V., (2016). Monetary and Fiscal Policy in Advanced and Developing Countries: An Analysis Before and After the Financial Crisis, Quarterly Review of Economics and Finance, http://dx.doi.org/10.1016/j.qref.2016.04.013