A feasibility study of establishing fiscal council in Indonesia
In this paper we address the quantitative measurement of credibility in fiscal policy in the case of Indonesia over the period 2001-2016. This preliminary paper focuses on the deviations of the actual budget balances from the projections about these balances in the preceding years. The objective is to extract from these data insights into the credibility of the government fiscal policies. We found that fiscal policy as conducted by government is not perceived as credible. The targets set forward by government are often not met and usually the divergence is on the negative side. Revenue and spending are overestimated, leading to a deficit bias and growing indebtedness of government. Those results suggest feasibility to establish the fiscal council with independent powers to conduct the credible fiscal policy in order to maintain fiscal sustainability in the long-term.
Abdullah, H.H., A. Warokka, and H. Kuncoro, (2011), â€œBudgetary Slack and Entrepreneurial Spirit: A Test of Government Policy Consistency towards Its Campaigned Programsâ€, World Journal of Social Sciences, 1(5), November: 175-87.
Adji, A.D., (1998), â€œDo Budget Deficits Rise Current Account Deficits? Cases in ASEAN-5â€, Jurnal Ekonomi dan Bisnis Indonesia, 13(3): 15-28.
Aizenman, J. and N. Marion, (1993), â€œPolicy Uncertainty, Persistence, and Growthâ€, Review of International Economics, 1(2): 145-63.
Akitoby, B., et al., (2006), â€œPublic Spending, Voracity, and Wagner's Law in Developing Countriesâ€, European Journal of Political Economy, 22(4): 908â€“24.
Annett, A., (2006), â€œEnforcement and the Stability and Growth Pact: How Fiscal Policy Did and Did Not Change under Europe's Fiscal Frameworkâ€, IMF Working Paper Series WP/05/16.
Artis, M. and M. Marcellino, (2001), â€œFiscal Forecasting: the Track Record of the IMF, OECD, and ECâ€, Econometrics Journal, 4(1): 20-36.
Artus, P., (2014), â€œHow Can We Identify Monetary Credibility and Fiscal Credibility?â€, Flash Structural Problems Economic Research, No. 323, May.
Baldacci, E., (2009), â€œNeither Sailing Against the Wind, nor Going with the Flow: Cyclicality of Fiscal Policy in Indonesiaâ€, IMF Country Report No. 09/231.
Barro, R.J. and D.B. Gordon, (1983), â€œRules, Discretion, and Reputation in a Model of Monetary Policy, Journal of Monetary Economics, 12(1): 101-21.
Basri, M.C. and S. Rahardja, (2011), â€œMild Crisis, Half Hearted Fiscal Stimulus: Indonesia during the GFCâ€, in T. Ito and F. Parulian, (edt.), Assessment on the Impact of Stimulus, Fiscal Transparency, and Fiscal Risk, ERIA Research Project Report 2010-01: 169-211.
Baxter, M., (1985), â€œThe Role of Expectations in Stabilization Policyâ€, Journal of Monetary Economics, 15: 343-62.
Beetsma, R., M. Giuliodori, and P. Wierts, (2009), "Planning to Cheat: EU Fiscal Policy in Real Time", Economic Policy, 24, October: 753-804.
BlÃ¶ndal, J.R., I. Hawkesworth, and H. Choi, (2009), â€œBudgeting in Indonesiaâ€, OECD Journal on Budgeting, 2009/2.
BrÃ¼ck, T. and A. Stephan, (2006), â€œDo Euro Zone Countries Cheat with their Budget Deficit Forecasts?â€, Kyklos, 59: 3-15.
Cimadomo, J., M. Kirchner, and S. Hauptmeier, (2010), â€œTransmission of Government Spending Shocks in the Euro Area: Time Variation and Driving Forcesâ€, ECB Working Paper No. 1219.
Coenen, G., et al., (2012), "Effects of Fiscal Stimulus in Structural Models", American Economic Journal: Macroeconomics, 4(1): 22-68.
Clark, C.S., (2011), â€œWhat is 'Credible' Fiscal Policy? The Canadian Experience, 1983-2010: The View of a Former Practitionerâ€, a Chapter in New Directions for Intelligent Government in Canada: Papers in Honor of Ian Stewart, Centre for the Study of Living Standards: 101-26.
Crain, W.M. and R.D. Tollison, (1993), â€œTime Inconsistency and Fiscal Policy: Empirical Analysis of U.S. States, 1969â€“89, Journal of Public Economics, 51(2), June: 153â€“59.
Drazen, A. and P.R. Masson, (1994), â€œCredibility of Policies versus Credibility of Policymakersâ€, Quarterly Journal of Economics, 109(3): 735-54.
Enders, W., (2004), Applied Econometric Time Series, 2nd edition, New York: John Wiley & Son.
Gutierrez, M., (2012), â€œCountercyclical Fiscal Policies in an EAMU: Challenges and Fiscal Framework Implicationsâ€, International Center for Globalization and Development, IMF Regional Technical Assistance Center, Santiago, February.
Hallett, A.H., M. Kuhn, and T. Warmedinger, (2012), â€œThe Gains from Early Intervention in Europe: Fiscal Surveillance and Fiscal Planning Using Cash Dataâ€, European Journal of Government and Economics, 1(1), June: 44-65.
Hauner, D., J. JonÃ¡Å¡, and M.S., Kumar, (2007), â€œPolicy Credibility and Sovereign Credit: the Case of the new EU Member Statesâ€, IMF Working Paper WP07/1.
Ikhsan, M., (2014), â€œMaking Fiscal Rules Enforceableâ€, Paper presented in the IMF Conference Institutions for fiscal credibility â€“ Fiscal Policy Rules and Fiscal Council: Experience and Prospects in the Asia-Pacific Region, Tokyo, June 12.
ILO, (2011), â€œA Review of Global Fiscal Stimulusâ€, Discussion Paper Series No. 5.
IMF, (2010), World Economic Outlook: Rebalancing Growth, IMF, April, available at http://www.imf.org/external/pubs/ft/weo/2010/01/index.htm.
Jansen, D.W., Q. Li, Z. Wang, and J. Yang, (2008), â€œFiscal Policy and Asset Markets: a Semi-parametric Analysisâ€, Journal of Econometrics, 147: 141-50.
Jha, S., S. Mallick, D. Park, and P. Quising, (2010), â€˜Effectiveness of Counter-Cyclical Fiscal Policy: Time-Series Evidence from Developing Asiaâ€™, ADB Economics Working Paper Series No. 211.
Kandil, M. and H. Morsy, (2014), â€œFiscal Stimulus and Credibility in Emerging Countriesâ€, Eastern Economic Journal, 40: 420-39.
Kopits, G. and S. Symansky, (1998), â€œFiscal Policy Rulesâ€, IMF Occasional Paper, No.162, Washington, D.C.: International Monetary Fund.
Kuncoro, H., (2000), â€œEkspansi Pengeluaran Pemerintah dan Responsivitas Sektor Swastaâ€, Jurnal Ekonomi Pembangunan, 5(1): 53-63.
Kuncoro, H., (2011a), â€œThe Cost of Public Debt Services, the Case of Indonesiaâ€, International Journal of Advanced Economics and Business Management, 1(1): 14-24.
Kuncoro, H., (2011b), â€œThe Indonesiaâ€™s State Budget Sustainability and Its Implication for Financial System Stabilityâ€, Romanian Journal of Fiscal Policy, 2(1): 36-53.
Kuncoro, H., (2014), â€œDoes the Credible Fiscal Policy Reduce its Volatility? The case of Indonesiaâ€, Journal of Applied Economic Sciences, 9(3): 382-93.
Kuncoro, H., (2015), â€œDoes the Credible Fiscal Policy Support the Prices Stabilization?â€, Review of Economic Perspectives, 15(2): 137â€“56, DOI: 10.1515/revecp-2015-0014.
Kydland, F.E. and E.C. Prescott, (1977), "Rules Rather than Discretion: The Inconsistency of Optimal Plans", Journal of Political Economy, 85(1): 473-91.
Mankiw, N.G., (2013), Macroeconomics, 8th edition, New York: Worth Publishers.
Merola, R. and J.J. PÃ©rez, (2013), â€œForecast Errors: Governments versus Independent Agencies?â€, European Journal of Political Economy, 32: 285-99.
Naert, F., (2011), â€œCredibility of Fiscal Policies and Independent Fiscal Bodiesâ€, Review of Business and Economic Literature, 56(3): 288-309.
Naert, F. and S. Goeminne, (2011), â€œMeasuring Credibility of Fiscal Policiesâ€, Paper Submitted for the 67th Congress of the International Institute of Public Finance University of Michigan, August 8-11.
OECD, (2012), Economic Survey of Hungary 2012, Paris: OECD Publishing, March.
O'Sullivan, A. and S.M. Sheffrin, (2003), Economics: Principles in Action, Upper Saddle River, New Jersey: Pearson Prentice Hall.
Perry, G.E., (2003), â€œCan Fiscal Rules Help Reduce Macroeconomic Volatility in the Latin America?â€, Policy Research Working Paper No. 3080, World Bank, June.
Pina, Ã.M. and N.M. Venes, (2011), â€œThe Political Economy of EDP Fiscal Forecasts: An Empirical Assessmentâ€, European Journal of Political Economy, 27(3): 534-46.
Rahmany, F.A., (2004), â€œKetahanan Fiskal dan Manajemen Utang Dalam Negeri Pemerintahâ€, in H. Subiyantoro and S. Riphat, (Eds), Kebijakan Fiskal, Pemikiran, Konsep, dan Implementasinya, Kompas, Jakarta: 382-93.
Snyder, W., (1985), â€œThe Budget Impact on Economic Growth and Stability in Indonesiaâ€, Ekonomi dan Keuangan Indonesia, 33(2), July: 21-34.
Strauch, R., M. Hallerberg, and J. von Hagen, (2004), â€œBudgetary Forecasts in Europe, the Track Record of Stability and Convergence Programsâ€, ECB Working Paper Series No. 307.
Tang, H.C., P. Liu, and E.C. Cheung, (2010), â€œChanging Impact of Fiscal Policy on Selected ASEAN Countriesâ€, ADB Working Paper Series on Regional Economic Integration No. 70, December.
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Economic Journal of Emerging Markets (EJEM) is accredited by the Ministry of Research, Technology and Higher Education of the Republic of Indonesia (RISTEKDIKTI), No. 36a/E/KPT/2016. It is currently indexed in:
Emerging Source Citation Index Clarivate Analytics, REPEC (Econpapers), EBSCO, Directory of Open Access Journals (DOAJ), Cite Factor, Sinta (Science and Technology Index), IPI (Indonesian Publication Index), OCEC WorldCat, Harvard Library, The Univesity of Manchester, University of Oxford, Google Scholar, Asean Citation Index, Dimensions - Digital Science
Economic Journal of Emerging Markets by http://journal.uii.ac.id/JEP/ is licensed under a Creative Commons Attribution 4.0 International License.