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Economics and Finance in Indonesia
Debt sustainability; fiscal imbalance; fiscal reaction function; policy asymmetries
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Fiscal Sustainability In Indonesia With Asymmetry, Mohamad Ikhsan, I Gede Sthitaprajna Virananda
Fiscal Sustainability In Indonesia With Asymmetry, Mohamad Ikhsan, I Gede Sthitaprajna Virananda
Economics and Finance in Indonesia
The management of fiscal balance determines public debt sustainability, where a positive response of primary balance towards the debt ratio indicates a sustainable path. However, there might be asymmetry in the government's fiscal management between different phases of the debt trajectory and business cycle. This study examines the sustainability of fiscal imbalance and public debt in Indonesia using the fiscal reaction function with annual fiscal data from 1976 to 2019. We incorporate asymmetry by decomposing the lagged debt ratio and cyclical output variables into their positive and negative partial sums. We find that Indonesia's fiscal imbalance is on a path …