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Social and Behavioral Sciences
Economics and Finance in Indonesia
Capital Spending; Non-Capital Spending; Regional Inflation; Subnational Government
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Lowering Regional Inflation? Improve Budget Absorption, Vid Adrison
Lowering Regional Inflation? Improve Budget Absorption, Vid Adrison
Economics and Finance in Indonesia
The subnational government spending in Indonesia exhibit a highly skewed distribution, i.e., it is very low in the first two-quarters and then increases significantly in the last two-quarters. Such explosive pattern poses two disadvantages. First, the regional output will fall below its optimal level as the low government capital expenditure leads to a fewer provision of public goods. Second, a significant increase in government spending in the later quarter pushes the short run aggregate demand to the northeast and creates an inflationary pressure in the following quarters. In this study, we analyze the effect of quarterly regional government expenditure growth …