A Causality Relationship Between Tax Revenue and Government Expenditure in Indonesia

Jaka Sriyana
Journal article Economic Journal of Emerging Markets • 2009 Indonesia

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(Bahasa Indonesia, 9 pages)

Abstract

This paper attempts to model the relationship between tax revenue and government expenditurefor Indonesia over the period 1970-2007. The empirical analysis employs tests of cointegrationand Vector Error Correction Model (VECM). The empirical evidence suggests thatthere is a long run relationship between tax and government expenditure, but in the shortterm, the model explains unidirectional causality relationship, namely from tax revenue Togovern ment expenditure This finding indicates that the budget deficit increase continuously,which threaten the fiscal sustainability in the long term. It suggests that the governmentshould organize a better management on public finance policies to support the tax-spend fiscalpolicy.

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Economic Journal of Emerging Markets

Economic Journal of Emerging Markets (EJEM) is an open access, peer-reviewed economic journal tha... see more