Policy Determinants of Budget Deficit in Indonesia

Abstract In this study, the causes of the budget deficit in Indonesia were examined using multiple regression analysis and the Error Correction Model (ECM) technique utilizing annual data for the years 1998 to 2020. The results show that in the short term, only inflation and government subsidies have a significant impact on the budget deficit in Indonesia when using the Error Correction Model (ECM) approach to analyze the effects of the chosen money supply variables, foreign exchange rates, inflation, and government subsidies.. Long-term estimations indicate that the government subsidies, inflation, foreign exchange rates, and money supply variables all have a positive and considerable impact on the budget deficit. Within 7 months, the equilibrium between the short- and long-terms can be restored. Policymakers are advised to keep an eye on changes in the money supply, foreign exchange rates, inflation, and government subsidies to avoid causing the budget deficit to rise above the allowable limits, which are 3 percent of the State Revenue and Expenditure Budget