Arti Adji(1*)

(1) Universitas Gadjah Mada
(*) Corresponding Author


"Jer basuki mawa bea". There is no such thing as a free lunch. Government
like other economic agents-has to finance its expenditures, now or later. "Oikos
nomos",-Greek words from which the word economics came from is the essence of
government activities in managing its budget. The topic of this paper concerns with
the way the government finances its budget and its effects on economic activity.
Specifically, this paper is aimed to test empirically whether the Ricardian
equivalence or a public debt neutrality holds in Indonesia. The longrun analysis of an
error correction representation suggests that the timing of taxation does not matter,
implying that the government can conduct mix-finance fiscal policy. Furthermore,
test for rationality conducted in this paper shows the evidence of rational consumers
one of the assumptions underlying the Ricardian hypothesis to hold.


Government finances, ricardian equivalence, public debt, fiscal policy

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