It Is Possible Fiscal Capacity Effected by Covid-19 Pandemic?

Abstract

The world economy, including Indonesia, in the first quarter of 2020 has not been too affected by Covid-19. However, in the second quarter of 2020, national economic growth began to decline. As a result of the contraction of the Indonesian economy, it has an impact on the decline in regional fiscal capacity. This study focuses on: 1) The effect of Economic Growth on fiscal capacity in 34 provinces in Indonesia before and during the Covid-19 pandemic?; 2). Development of sources of fiscal capacity in Indonesia; 3). Quadrant of Relationship between Economic Growth and Fiscal Capacity; 4). The government's policy direction is to encourage increased fiscal capacity during the Covid-19 pandemic. This research uses descriptive quantitative method using panel data regression model. The rate of economic growth does not significantly affect the amount of regional fiscal capacity in 34 provinces in Indonesia. The decline in fiscal capacity was largely influenced by a decrease in Regional Original Income (ROI). In 2021 the sources of fiscal capacity building have not run normally. The effect is that the regional fiscal capacity is still low for each province. Therefore, to restore the economy, the government uses various stimuli, namely fiscal, monetary, and sectoral.