DOES TRADE OPENNESS AND FISCAL POLICY AFFECT INEQUALITY AND ECONOMIC GROWTH? A STUDY IN INDONESIA

Mohammad KHUSAINI

Dr. in Economics, Faculty of Economic and Business, Brawijaya University-INDONESIA

mohkhusaini@yahoo.com

Setyo TRI WAHYUDI

Ph.D in Economics, Faculty of Economic and Business, Brawijaya University-INDONESIA

Setyo81@gmail.com

Zamrud SISWA UTAMA

Master of Economics Student at Faculty of Economic and Business, Brawijaya University-INDONESIA

Abstract

This paper examines the impact of trade openness and Indonesia’s fiscal policy on income inequality and economic growth. The error correction model approach was used to analyze the effect during the period 1980 to 2015. The results show that trade openness can improve inequality but at the same time impede growth. The effect of fiscal policy on reducing inequality is only generated by tax collection but is temporary. Meanwhile, government spending on infrastructure and health proved to encourage growth. On the other hand, education sector spending and tax collection can actually hamper growth.

Keywords: Trade Openness, Inequality, Growth, Fiscal Policy

JEL classification: E62, F63, H50, O40
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FISCAL ACTIVISM IN EUROPEAN REGIONS: EVIDENCE ON FISCAL RULES BEFORE AND AFTER THE EURO

Georgios KARRAS
Department of Economics, University of Illinois at Chicago,
601 S. Morgan St., Chicago, IL 60607 7121
gkarras@uic.edu

Abstract
The introduction of the euro has been followed by noticeable fiscal divergence between the core and the periphery economies. This paper investigates the basic properties of fiscal policy in Europe and asks whether these properties are affected by euro membership. The empirical findings suggest that fiscal policy has been decisively countercyclical and generally sustainable. Adopting the euro raises the average country member’s primary deficit by about 0.5% of GDP within a year and the effect accumulates to 1.76% of GDP ten years later, but these dynamic responses are far more pronounced in the periphery economies than in the core.

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