Abstract
This study examines the effect of the realization of government spending consisting of goods expenditure, capital expenditure and employee expenditure on tax revenue in Indonesia. In this study, we use four analytical methods that consist of Granger Test, Partial Adjustment Model (PAM), Error Correction Model (ECM) and Vector Autoregression (VAR). The result shows that the realization of goods and employee expenditure are significant determinant of the tax revenue. Further examination shows that the shocks on goods and employee expenditure havea positive impacts toward tax revenue. However the shock effects are different on those variables. On the shock to goods expenditure, the tax revenue response will occur directly, in contrast to shock on employee expenditure that requires time lag. This study also finds that between PAM and ECM, the ECM model is more appropriate to be used to explain the effect of government spending on tax revenue in Indonesia.
Highlights
One of the main functions of the state is to create welfare for its citizens
The causal relationship between tax revenue and the realization of government spending is in accordance with the view that the actual value of government expenditure in one year has been previously budgeted in the State Revenue and Expenditure Budget. taxation
Testing the causality relationship shows that in general there is a mutually influencing relationship between State expenditures consisting of goods expenditures, capital expenditures and personnel expenditures with tax revenues
Summary
One of the main functions of the state is to create welfare for its citizens. This function is carried out through various programs and activities carried out by the government. In connection with the differences in the results of the research above, the authors are interested in conducting research on the causal relationship between state spending and tax revenues in Indonesia. The ECM model used in the study can be presented as follows: Because the research data is time series data, in order to conduct research, it is necessary to first find a method that is in accordance with the nature of the data being studied In this case, the test can be carried out using several methods, in cluding the Granger test to test the causal relationship between government spending and tax revenue, as well as the partial adjustment model (PAM) and error correction model (ECM) to test the effect of government spending on tax revenue. The data analysis will be carried out using Eviews 9 software
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