Government investment in Indonesia boosts economy and welfare, consumption spending falls.
The study looks at how increasing government spending on infrastructure in Indonesia can impact the economy. By using a DSGE model, the researchers found that a 1% rise in government spending on consumption and investment could boost economic growth by 0.04% and 0.05% in the short term. The output multiplier for government spending on investment is higher than for consumption, indicating that investing in infrastructure has a greater impact on growth. Additionally, increasing government spending on investment leads to an improvement in welfare, while spending on consumption could actually decrease welfare.