Spatial impacts of fiscal stimulus policies during the 2009 global financial crisis in Indonesia
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Spatial impacts of fiscal stimulus policies during the 2009 global financial crisis in Indonesia Budy P. Resosudarmo1 · Abdurohman2 · Arief A. Yusuf3 · Djoni Hartono4 Received: 3 June 2019 / Accepted: 30 September 2020 © The Japan Section of the Regional Science Association International 2020
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. Keywords Economic crisis · Fiscal stimulus · Spatial general equilibrium model · Macro–micro-economic model JEL classification R13 · H12 · O23 · E62 · C68 · D58
* Budy P. Resosudarmo [email protected] 1
Arndt Corden Department of Economics, Crawford School of Public Policy, Australian National University, Canberra, Australia
2
Indonesian Ministry of Finance, Jakarta, Indonesia
3
Faculty of Economics and Business, Padjadjaran University, Bandung, Indonesia
4
Faculty of Economics and Business, University of Indonesia, Depok, Indonesia
13
Vol.:(0123456789)
Asia-Pacific Journal of Regional Science
1 Introduction The global financial crisis (GFC) that initially erupted in USA in late 2008 affected economic activities around the world. The GFC precipitated a fall in global economic growth from 5.4 in 2007 to 2.9% in 2008, before finally causing a contraction of 0.5% in 2009, the biggest shock since the Great Depression in the 1930s (IMF 2010). The weakening of the global economy was also reflected in the 2009 substantial fall in world trade volume (10.9%) on the back of weaker import demand in advanced countries, particularly the US, the European Union, and Japan. In response to this 2008/2009 GFC, many developing countries launched fiscal stimulus packages (FSP) that were significantly large relative to their GDPs. Indonesia was among those countries that responded to the GFC through expansionary fiscal policy. In early 2009, the Government and the
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