Abstract
Abstract Fiscal sustainability illustrates the condition of a healthy government budget which can finance government spending without increasing debt supply. The purpose of this study is to analyze the impact of macroeconomic variables on fiscal sustainability which in this study fiscal sustainability is proxied as a government budget deficit. The data used in this study is the 2004Q1-2018Q4 time series data using the Vector Error Correction Model (VECM). The results showed that fiscal conditions in Indonesia are sustainable and macroeconomic variables such as domestic debt andinflation has a positive effect on increasing the government budget deficit. Whereas the variable state revenues and foreign debt negatively affect the government budget deficit.Keywords : Fiscal Sustainability, Government Budget Deficit, Domestic Debt, Foreign Debt.
Highlights
The economic crisis experienced by Indonesia in 1998 and 2008 had an impact on increasing government debt to cover the budget deficit
This study aims to analyze the condition of fiscal sustainability in Indonesia and the effect of macroeconomic variables on fiscal sustainability by using a proxy for budget deficits
By using time series data and the Schwarz Criterion Test with break point analysis tool to analyze fiscal sustainability and the Vector Error Correction Model (VECM) analysis to determine the impact of macroeconomic variables on fiscal sustainability in Indonesia
Summary
The economic crisis experienced by Indonesia in 1998 and 2008 had an impact on increasing government debt to cover the budget deficit. If the budget deficit using debt is not managed properly, according to Kuncoro (2011)the budget deficit will be a major problem for fiscal sustainability in Indonesia. Fiscal sustainability is a fiscal capability in implementing various government policies and programs by taking into account macroeconomic conditions, and maintaining the ratio of the country's debt to Gross Domestic Product (GDP) is fixed (Manurung, 2009). Long term oriented debt management is needed to be able to achieve conditions of fiscal sustainability. The law has secured a maximum budget deficit (fiscal) ratio of 3 percent and a maximum debt ratio of 60 percent of GDP (Law No 17 of 2003).
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