The Impact of Fiscal Policy toward Economic Performance and Poverty Rate in Indonesia

The government is continuously formulating some policies in order to boast economic growth and downsize poverty rate. However, the government is facing some obstacles such as an increasingly in budget deficit which is potentially impacting to the determining of priority scale as well as the pro and contra within it. Based on that consideration, economic policy is needed to be revised and redesigned in order to meet the need of pro growth, pro job, and pro poor. Generally, this research aims to examine the impact of an expansion and contraction of fiscal policy measures on Indonesia economic performance. For the purpose of this study, the change of macro economic indicators, economic sector performance, and the change of poverty and income distribution are examined using the Computable General Equilibrium (CGE) model. In order to evaluate the disparity of income distribution, beta distribution function is used which is adopted from Decaluwe, et al. (1999). This study employs Foster, Greer, and Thorbecke (F-G-T) and Cockburn (2001) methods to evaluate poverty (poverty incidence) on each household group. The results of this study show that the impact of an increase in subsidy is more favourable than two others fiscal policy measures. Even though the policy of transfer income gives a positive impact for the upsizing of rural household income and the downsizing in poverty, but on the other hand it has negative impact on others household income which aggregately has a negative impact on the decreasing of GDP.