Spatial impacts of fiscal stimulus policies during the 2009 global financial crisis in Indonesia

Abstract

In response to the 2008/2009 global financial crisis (GFC), many developing countries, including Indonesia, launched fiscal stimulus packages (FSP). These FSPs typically consist of several sophisticated fiscal policies that may not necessarily complement each other. While the impact of these policies at the aggregate country level in developed countries has been widely discussed, the spatial impact of these policies within developing countries is less understood. Utilizing an inter-regional computable general equilibrium (CGE) model, this paper aims to assess and understand the short- and long-term economic impacts of these stimulus policies using Indonesia as a case study. This paper, hence, provides a quantitative ex-post assessment of FSPs typically implemented during the 2009 GFC by developing economies. Overall, results, indicate that fiscal stimulus had a positive impact on aggregate demand and on poverty prevention, principally via stimulating private consumption. Corporate income tax cuts have the largest economic impact in the long-run, and cash transfers are the most useful policy tool for alleviating poverty. An FSP, however, could have an uneven spatial distributional effect on output across regions, particularly in the short-term.