The 'Battle' of Fiscal Instruments : Evidence from Indonesia

This study examines the macroeconomic outcomes of different fiscal instruments using Indonesian data from 1969 to 2020, including the Covid-19 crisis period. We base our analysis on a structural vector autoregression (SVAR) model by extracting the impulse responses and historical decomposition to simulate the economic performance with and without a fiscal policy. We find asymmetrical effects between spending and tax where the latter is found more powerful. We also find more adverse impacts of increased VAT on consumption than reduced-current-expenditure and a higher positive effect of lowered-income-tax on investment in the short term, but longer-lasting impacts of raised-capital-expenditure