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Government Revenue and Government Spending Nexus: A Testing Hypothesis for Indonesia

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  • Solikin, Akhmad
  • Nizar, Muhammad Afdi

Abstract

There are still differences of opinion about the connection between government expenditure and revenues. This study aims to test hypotheses related to the direction of the relationship between Indonesian government revenues and expenses. By utilizing quarterly time-series data in the period 1969:q2 –2020:q4, the test was implemented using the Vector Autoregressive (VAR) model. The test results show that an increase in total government revenue and tax revenue causes anincrease in government spending during the study period. The results of this study provide supporting evidence for the revenue-and-expenditure or tax-and-spending hypothesis for the Indonesian government budget. The implication is that the government budget is always in deficit, and the need for financing (i.e. loans) is unavoidable.

Suggested Citation

  • Solikin, Akhmad & Nizar, Muhammad Afdi, 2022. "Government Revenue and Government Spending Nexus: A Testing Hypothesis for Indonesia," MPRA Paper 118556, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118556
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    References listed on IDEAS

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    More about this item

    Keywords

    Budget Deficit; Fiscal Policy; Government Revenue/Spending; Vector Autoregressive;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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