Fiscal policy and environmental quality in Indonesia

Abstract

Environmental quality at the national level as measured by the Environmental Quality Index (IKLH) in the last ten years has fluctuated, even though the regional government and the central government pay great attention to addressing environmental issues related to the importance of achieving sustainable development, population pressure and limited natural resources. Thus the purpose of this study is to spatially examine environmental quality and government budget allocations in overcoming these problems and analyse the impact of fiscal policies on environmental quality. The results of the analysis show that only a portion of the provinces with good environmental quality are due to the fact that most of the province’s water and land cover conditions (TL) are still relatively low. Based on the Klassen Typology analysis, the provinces that have the greatest role in the environmental quality problems of water and TL are all provinces in Java except DI Yogyakarta, Southeast Sulawesi, Bengkulu, Bali and East Kalimantan. While the results of the econometric model analysis of panel data show that fiscal policy has a significant effect on improving environmental quality, only inelastic. To increase the effectiveness of fiscal policies in handling environmental quality, the government budget allocation must be more focused on improving the quality of the water environment and TL in the province that most contribute to the problem.