Essays on tax smoothing and fiscal policy sustainability in Indonesia

This thesis deals with two related issues of fiscal policy optimality and fiscal policy sustainability in Indonesia. In Chapter 2, I examined whether fiscal policy has been optimal based on the tax smoothing hypothesis. In Chapter 3 and 4, I performed two different fiscal policy sustainability analyses. In Chapter 3 analysis is based on the government intertemporal budget constraint (IBC) approach, while in Chapter 4 analysis is based on Bohn’s Model Based Sustainability (MBS) approach. In general, I found that fiscal policy in Indonesia since 1970s has been optimal and sustainable, at least in the intertemporal dimension.