The Influence of Fiscal Policy on Poverty in Indonesia 1998 – 2022 Using the ARDL Method

Poverty in Indonesia has a decreasing trend but still needs to be watched out for because people who are free from poverty are only slightly above the poverty line. People in this condition are vulnerable to shocks returning them to poverty, such as rising fuel prices and increasing tax rates. The government's fiscal policy, namely fuel subsidies and VAT revenues, should be the key to reducing poverty. This study aims to determine the impact of government fiscal policy on poverty in Indonesia. The annual time series data for 1998-2022 using the Autoregressive Distributed Lag (ARDL) model. The results show that fuel subsidies significantly negatively affect poverty in the short term but do not significantly reduce poverty in the long term. VAT revenues significantly positively affect poverty in both the short and long term. In addition, poverty is also considerably influenced by economic growth, inflation, and unemployment. Therefore, to reduce the impact of fiscal policy, the government can assist people experiencing poverty and divert the budget to long-term beneficial sectors.