Proceedings of 29th International Business Research Conference
24 - 25 November 2014, Novotel Hotel Sydney Central, Sydney, Australia, ISBN: 978-1-922069-64-1
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Low and stable inflation are the main target to be achieved by the central bank in
Indonesia (Bank Indonesia). However, controlling inflation in Indonesia is not easy given Indonesia is an archipelago. The dynamics of prices that occur in the regional will determine the achievement of the national inflation rate.
The objective of this research is to determine how the effect of regional fiscal policy variables (employee expenditure, operating expenditure and capital expenditure) to the regional inflation rate in Indonesia in the period before and after Bank
Indonesia implemented inflation targeting policy. The method of analysis using a panel data with sample 27 provinces in Indonesia, from the period 2001-2013
(annual). The Data was regressed by the Fixed Effects Model (FEM), using
Eviews.
The results showed that employee expenditure, operating expenditure and capital expenditure significantly influence regional inflation. The dummy variable significant, indicating differences in the behavior of inflation between periods before and after Bank Indonesia implemented inflation targeting policy. The results of this study recommends that in maintaining the stability of inflation in the archipelago nation's central bank need to pay attention to local government fiscal policies that can affect regional inflation. In addition, local governments need to increase capital expenditure because it can increase the output of goods and services in order to maintain price stability. While the employee expenditure and operating expenditure are used to support the operations of the local government.
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Dr. Mohamad Fadhil Hasan, Committee in Supervisory Board of Bank Indonesia, Indonesia.
Email : fadhilhasan@bsbi.go.id
** Eko Listiyanto, MSE, Analyst in Supervisory Board of Bank Indonesia, Indonesia.
Email: ekolistiyanto@bsbi.go.id