what factors have led to the long term rise in government spending

one. Introduction

The touch of the Covid-19 pandemic is multidimensional – psychologically, materially and recessionary, and so that, in this status of "new normal", additional regime spending is needed to overcome these challenges. Theoretically and empirically, increased government spending is often used to restore economical growth due to the crisis, and economically and politically its use must also be efficient and effective. Therefore, difficult and smart piece of work is needed with the status of "new norms" so that government expenditure policies remain optimal, efficient and effective and able to carry out economic recovery well. At this time, a policy program to strengthen the quality of the institutional structure and social security and economical culture of the community through MSMEs and social entrepreneurship is urgently needed to become ane of the on-track efforts in the status of "new normal" (Prasetyo et al., 2020c; 2020d; Asean, 2020). Considering the existence of the MSME sector is able to get a supply concatenation of social investment and an of import commuter: equality, employment opportunities, sustainable economic growth, and poverty reduction, (Prasetyo, 2008; Prasetyo & Dzaki, 2020e; Tambunan, 2019).

In Indonesia, micro-, small- and medium-sized enterprises (MSMEs) are introduced to increase income by providing many easier jobs to improve economic growth. They have likewise been reported to be generally supporting the local industry (Srinivas, 2013; Mujahid, & Begam, 2019). Moreover, the economical growth of developed countries such as Nihon, Korea, Taiwan, and several others was significantly generated by SMEs activities (Katua, 2014). Withal, several MSMEs in developing countries like Indonesia are facing severe challenges and weaknesses requiring immediate and serious government attending through subsidies and regulations. These include the implementation of policies to promote local MSMEs development in society to alleviate poverty, unemployment, inequality, and likewise to increase income and economic growth (Prasetyo, 2008; Prasetyo et al., 2020c, 2020d; Asghar et al., 2011).

The role and role of government expenditure in economic growth and other sectors take been a subject of fence from the time of Adam Smith to the present. Combined with investment, it is inherent in all sectors ranging from regional to national levels. The effects of these 2 concepts on economic growth have been researched by several scholars (Frank et al., 2014; Gisore et al., 2014; Hasnul, 2015; Nurlina, 2015; Meyer & Muzindutsi, 2017; Oladele et al., 2017; Mazorodze, 2018; Nguyen, 2019). However, different results and ambiguous conclusions take been reported, fifty-fifty for the industrial sector. This has, therefore, led to further fence (Thanh, & Nguyen, 2019) with one of the most controversial literature problems beingness the direction of the causal human relationship between public expenditure and economic growth (Karahan & Colak, 2019). Co-ordinate to Kuncoro (2014), not all government expenditures are productive and this statement strengthens this paper's urgency to contribute both theoretically and empirically to this discourse. Its novelty was to comprehensively explain government expenditure and investment's influence on MSME growth, which is expected to stimulate economic growth.

The nearly recent evidence showed the MSMEs in Indonesia are largely dominated past micro- and small-sized enterprises (MSEs) more often than not due to the prevalence of poverty (Tambunan, 2019). However, MSMEs growth in several countries has been observed to be very dilemmatic requiring the intervention of conducive government expenditure and investment policies. This is necessary considering the importance of these businesses in stimulating entrepreneurial climate, increasing income, creating employment, alleviating poverty, contributing to Gdp, and ultimately driving economic growth (Prasetyo & Kistanti, 2020a; Prasetyo, 2008; Tambunan, 2019; Weldeslassie et al., 2019). They, however, face several quite heavy constraints and challenges such as lack of credit, weak market relations, inadequate training, dependency, weak human resource development, and low productivity (Tambunan, 2019; Weldeslassie et al., 2019). These led to Tambunan's (2019) recommendation that government policies need to provide straight facility assistance at product sites and alternative funding facilities with low-interest rates and requirements.

Based on this background, this paper's novelty and urgency were to further examine and explain the contribution of government expenditure and investment in promoting MSMEs growth in Indonesia. The specific purpose was to investigate and explain the main factors affecting this growth, while the novelty and originality involved the assumption that economical growth has a greater function to play and not vice versa. Furthermore, more focus was placed on investigating the contribution of government expenditure and investment towards each sector through the novelty specification model. The results are expected to further prove the findings of previous research that MSMEs and other small-scale industries in Indonesia abound and develop because of their creativity while large businesses or industries leverage on more facilities and credit provided by the State.

In the status of "new normal", favoring only large businesses is no longer advisable. This partisanship policy model volition not solve the existent-life bug of community welfare and will continue to increment inequality. Even though large businesses and MSMEs are the aforementioned as crisis mitigation, their main function is still different. The main role of large businesses is more to guarantee the growth of output. Meanwhile, the main function of UMKM is more on social rubber networks and job opportunity providers. Therefore, regime expenditure policies must exist optimized for both large businesses and MSMEs. However, in the status of "new normal", additional authorities spending should be more focused on the socio-cultural economic assist of the community beginning. The specific purpose of this paper is to explain the argument for the importance of focusing on the policy choices.

2. Literature Review

In macroeconomic theory, government expenditure is integral to the fiscal policy instruments usually used to increase income and economic growth through consumption and investment. There are several economic theorists associated with this concept, but those related to this inquiry include Adolf Wagner (1835-1917) or better known as Wagner's law (1893), A.C. Pigou (1928), Peacock and Wiseman's (1961) theory, William G. Bowen (1965), the theory of developing authorities expenditure from Musgrave as well as the NeoClassical and Keynesian economists. Furthermore, specific literature studies used are based on Wagner'southward constabulary, which states that economic performance has a fundamentally positive touch on public sector growth.

This law shows there is a functional relationship between government expenditure and economical growth. It as well states that government expenditure initially tended to increase at a faster rate and, subsequently, steadily due to an increase in the income growth and argument and this was associated with the need for industrialization performance and economical development. Even though there are several criticisms while the theory was being adult, the nearly of import affair in relation to this research is the positive impact on the public sector and the basis of its arguments. This is due to the fact that government expenditure functions not to increase just economic growth but too industrial growth such as MSMEs and economic development.

Wagner's theory shows an increase in a state's real per-capita income during the industrialization procedure usually leads to an increase in total public expenditure. This, therefore, theoretically assumes the emergence of the MSME industry and entrepreneurship in Indonesia in this modern era is able to increase political pressure and accelerate socio-economic customs to attain mutual prosperity co-ordinate to the 5th Pancasila precepts (the official Republic of indonesia foundational philosophical theory of Indonesia). It also means any increment in government expenditure should exist able to promote MSMEs growth which are functioning as the means to cushion the effects of the 1998 and 2008 economic crises past reducing poverty and providing new jobs (Prasetyo, 2008). Still, considering the crisis as a public disturbance problem ways it can be supported by the Peacock-Wiseman's bones theory which states that the public expects the authorities or Country to have the ability to immediately overcome a crunch by adjusting its expenditure with new socio-economical ideas. This ways regime inability to make proper and correct adjustments may create a problem of trust from the community.

Wagner'southward Law is seen every bit the first public expenditure theory model in the public finance history, while Wagner and Peacock-Wiseman's theory is established on the nuts due to the being of several ambiguous conclusions from several researchers. Moreover, several studies on the bear on of government expenditure on economical growth take shown unlike results, thereby, creating opportunity for further research. Thanh and Nguyen (2019) investigated the dynamics of government expenditure and economical growth in China using productivity growth in human capital as the indicator past applying Markov estimates to annual time series data over 1952-2014. An imbalanced relationship was found between the variables. The enquiry confirmed the level of government expenditure's inability to increment productivity growth in homo uppercase. Meanwhile, Nyasha'south and Odhiambo, (2019) enquiry supported the statement that economic growth is influenced by authorities expenditure without any increment in causal human relationship.

Another empirical research besides explained authorities expenditure in Nigeria increased economic growth, fifty-fifty though the impact was very small and less than one percent (Akpan and Abang, 2013). Government expenditure and GRDP have besides been reported to have a long-term equilibrium relationship with positive and strong correlations (Kasimu and Aggreh, 2014). Moreover, Frank et al., (2014) found regime expenditure to take a significant positive touch on economic growth in the long run merely a negative impact in the short term based on the research conducted in Republic of ghana. Hasnul (2015) showed a negative correlation between the variables in Malaysia over the past 45 years, while a positive and pregnant event was recorded from 2004 to 2013 in Republic of indonesia by Nurlina (2015) based on GDP. Furthermore, Uzuner et al., (2017) found a positive and significant influence, while the empirical research conducted by Ebaid and Bahari (2019) in Kuwait supported the directional causality from authorities expenditure to economic growth, only when real government expenditure per capita is the proxy for state activeness and real GDP per capita is the measure for economic growth. The effect was too observed to have varied for each sector and this was observed to be an interesting topic for future research.

The literature reviewed on the role of government expenditure and investment on economic growth did non provide the same conclusion. According to Meyer and Muzindutsi, (2017), investment had a positive and significant effect in the curt and long term, while government expenditure only had a small and insignificant effect in South Africa. The empirical research by Nguyen (2019) showed Vietnam's state budget expenditure had a positive effect on the economic system, but each major component had a unlike impact with the recurrent expenditure observed to have a significant positive impact while no strong evidence was discovered to confirm the relationship between the statistically insignificant development investment and economic growth. Furthermore, Mose et al., 2014) specifically confirmed investment expenditure relatively encourages economic growth, while consumption impedes it, and human capital expenditure was found to be insignificant. Meanwhile, Butkiewicz and Yanikkaya, (2011) reported government consumption expenditure in developing countries to be ineffective with the ability to crusade harm and has negative effects on their economic growth.

The urgency of this inquiry is based more than on Wagner and Peacock-Wiseman's theory too equally Ebaid and Bahari'south (2019) recommendations, while the novelty and originality are more than specific, especially with the main focus on the contribution of government expenditure and investment to the growth of MSME entrepreneurship instead of the economic growth. However, there are only a few recent literature reviews found on this issue with the results showing the SME sector has been widely accepted as an engine of economic growth and poverty alleviation in the globe (Katua, 2014). Moreover, developed countries take shown the MSME sector to be the basic link for their public economical growth and development. It is, however, of import to notation that policymakers in the field of entrepreneurship and MSME are generally complicated and messy (Asghar et al., 2011). Essien et al., (2016) showed causality was in line with the output and productivity of SMEs for public expenditure while Cephas et al., (2018) institute no significant relationship between tax rate (TAR) and the growth of SMEs, but a significant outcome was observed for government expenditure (GEXP) in Nigeria. Furthermore, a recent research review by Metasari (2019) using panel data of 2013-2015 showed public services and education projected by gross participation information to take a positive influence on the MSE development, while economic growth and minimum wage policies have a negative influence in Indonesia.

iii. Methodology

The wide outline of the research method was classified into two and these involve information and method and empirical model to ensure easy understanding, relevance, and simplicity.

3.one. Information and Method

The main sources of data and variables used were quarterly economical data recorded after the 2008 global economic crisis covering the 2009-2019 Q3 period with the dimension on all variables used as a unit to measure out the growth. The primary subjects were MSME sector businesses instead of SMEs used in previous studies (Cephas et al., 2018; Metasari, 2019). In line with the recommendations from previous researchers, the method used was comprehensively detailed with the use of four different specification models including (i) general MSME growth too as (ii) micro, (3) small-scale, and (4) medium business organization sectors, which are considered as empirical novelty models in this research.

The stages of enquiry activities were conducted rigorously, thoroughly, and carefully. In the initial stages, the classical assumption test was conducted on each experimental model choices before the empirical analysis model pick and awarding subsequently which a MSME model general form was selected. This was followed by considering three subsequent models every bit the all-time rescue due to the specification bias in the general ane. Scientifically, the experimental model was tested to make up one's mind dissimilar independent factors considered of import to MSMEs growth. The final pace involved the model selection based on the subject affair and research objectives after it had passed the classical assumption test and scientifically confirmed to exist the best.

3.2. Empirical Model

The general purpose of this empirical model was to evaluate the impact of government expenditure, Gdp, investment, and working capital on MSME growth in Republic of indonesia. Moreover, in line with several scientific arguments, the specific purpose of the empirical specification model was to further examine authorities expenditure and investment effects on MSMEs. The technique used includes the Ordinary Least Square (OLS) linear regression assay model, which technically involved using the EViews x. Meanwhile, the main important variables included in the empirical assay model have been previously explained above. In order to make the research activity procedure easier to understand, the systematics of the four models of linear regression assay equations using the OLS method is presented as follows.

\(\begin{aligned} \mathrm{MSMEs}=& \tau_{0}+\tau_{ane} \log \mathrm{GE}+\tau_{two} \log \mathrm{PDB}+\\ & \tau_{iii} \log \mathrm{IN}+\tau_{4} \log \mathrm{WC}+\varepsilon_{one} \end{aligned}\)       (1)

\(\begin{aligned} \mathrm{MiB}=& \alpha_{0}+\alpha_{i} \log \mathrm{GE}+\alpha_{2} \log \mathrm{PDB}+\alpha_{3} \mathrm{IN}+\\ & \alpha_{4} \mathrm{WC}+\alpha_{5} \mathrm{SmB}+\alpha_{6} \mathrm{MeB}+\varepsilon_{ii} \end{aligned}\)       (ii)

\(\brainstorm{aligned} \mathrm{SmB}=& \beta_{0}+\beta_{1} \log \mathrm{GE}+\beta_{2} \log \mathrm{PDB}+\beta_{3} \mathrm{IN}+\\ & \beta_{4} \mathrm{WC}+\beta_{5} \mathrm{MiB}+\beta_{half dozen} \mathrm{MeB}+\varepsilon_{3} \stop{aligned}\)       (3)

\(\begin{aligned} \mathrm{MeB}=& \partial_{0}+\partial_{1} \log \mathrm{GE}+\partial_{two} \log \mathrm{PDB}+\partial_{3} \mathrm{IN}+\\ & \partial_{4} \mathrm{WC}+\partial_{5} \mathrm{MiB}+\partial_{half-dozen} \mathrm{SmB}+\varepsilon_{4} \end{aligned}\)       (four)

Where: MSMEs are the level of growth in question, MiB is the micro-business level variable, SmB is small-scale business level, and MeB is the medium concern level variable subsequently considered as the dependent variable. Furthermore, the independent variables include the GE (level of regime expenditure), GDP (level of economic growth), IN (level of public investment), and WC (level of working capital). Meanwhile, (τ, α, β, and ∂) is the desired parameter value of the linear regression coefficient while the quantity ε_n is a random rest in each equation model.

Basically, defining the variable concept every bit endogenous and exogenous, considering the three specification models in i assay group, and conducting club and rank tests as necessary and sufficient atmospheric condition leads to the consideration of the model as an equation model simultaneous system. However, it was impossible to implement this step at this research stage and in practice. Therefore, the specification model was considered an ordinary OLS linear regression model in line with the level of urgency, novelty, and subject matter originality and research objectives examined.

iv. Empirical Results and Discussion

Methodologically, the results shown in Table 1 are the general model used as the introduction to explicate and compare empirical evidence from the scientific process to strengthen the argumentation in selecting the results of the specification model. However, due to the results imperfection, it is not recommended to be discussed and interpreted further.

Table 1: Results of the MSME General Empirical Regression Model

Farther discussion tended to utilize more results in the empirical form of model ii, model 3, and model iv specifications. Meanwhile, it is possible to utilise the findings of model 1 presented in Table 1 in a scientific and functional process as a basis for strong arguments and good comparisons. It was observed to have shown a partial significant influence of the role of government expenditure, economic growth, investment, and working majuscule on MSME growth. However, based on the small R2 value of 44.68 pct and the Durbin-Watson statistical value (DW-examination) of 0.525203, the contribution of all variables was concluded to be small and misleading. It also indicates an auto-correlation example, thereby, declaring model 1 biased requiring correction and with the estimators declared inefficient and misleading. Therefore, there is a need for the model comeback of the model.

Theoretically and empirically, the functional form of model-one was found to exist good and right due to the level of significance, simply discovered to have an autocorrelation problem based on the DW value of 0.525203. This ways the OLS class regression model on it was inefficient and the results misleading, simply the bias trouble was not due to an mistake in the functional class but the empirical bias in the specification of the variable cases. Moreover, the minor R2 value shows the bias was merely in the model specification and not an inertia problem. This means, in practice, information technology is impossible to solve the model-1 rescue evidence by an inertia or lag model, just through the add-on of a new variable, which empirically (Das-Solen and Das-Sein) should be present in it. Therefore, iii new specification models were successfully developed every bit the best and correct rescue models and they include model ii, model iii, and model iv. Based on the specification model, the OLS model regression form was declared Blueish (Best, Linear, Unbiased Estimator) and found to be no longer misleading and this made it possible to use the regression results for interpretation.

Table 2 shows the function of government expenditure is partially positively insignificant to the growth of microenterprises in Indonesia, while investment sector factors were partially positively significant during the research period. Furthermore, the economical growth factors measured past the Gross domestic product growth too as the role of small- and mediumsized businesses on the growth of microenterprises was found to be partially negative and significant. This shows the influence of the three factors is certainly not in accordance with the basic economical theory and the proposed empirical model. Nonetheless, the negative upshot on Gross domestic product growth could exist associated with the impact of the decrease in the Gross domestic product level causing the shift from the small, medium, and large businesses to micro ones. Scientifically, researchers are limited to tracking the subsequent impacts considering the master data source has been narrowed to secondary ones. Meanwhile, the role of working capital in model two was shown to be negatively insignificant and this was attached to the fact that micro-businesses are generally inefficient at utilizing or managing financial resources from these working capital sources.

Table 2: Results of Empirical Regression Models of Microbusiness

The results also showed there is a negative and insignificant influence of working capital letter on the growth of microbusinesses, therefore, the problem is non in accordance with the expected theoretical basis and empirical model. Due to the utilise of secondary data, it was hard for researchers to runway the reason for the trouble. However, there are indications of additional explanation from previous inquiry (Prasetyo, 2019a, 2019b), which showed microbusinesses to mostly have very weak productivity and business fiscal management mainly due to the inability to distinguish between business capital letter and money for other purposes. This was increasingly observed in areas with many social activities such as celebrations and others. The entrepreneurs use the tactical micro-enterprise funds for interests categorized as very urgent due to the unavailability of other funding options. Moreover, even though they know the coin is their working capital, they are frequently forced to utilize it start to meet their more pressing needs with the hope of replacing information technology at a later time, only, in practice, most of the microbusiness actors oftentimes have difficulty returning the working capital. In fact, more microbusinesses eventually close down due to the lack of new working capital letter to develop the business and this shows its vulnerability caused past its ability to abound and die very fast. They generally practise non obtain assist from banks due to the interest rates and complicated rules attached to the procedure. The cyberbanking sector has also been discovered to take whatsoever pregnant contribution to their activities because they are believed non to be profitable due to a large number of administrations. This, therefore, shows potent and business firm policies are required to sustain the existence, growth, and development of microbusinesses.

The results of model 3 presented in Tabular array 3 showed regime expenditure and investment contributed positively and significantly to the small-scale business organisation sector growth at a ninety per centum conviction level. All the same, economical growth measured by GDP on current prices was found to be negative and insignificant while the role of micro and medium businesses was negative and pregnant. Meanwhile, working capital was discovered to take a positive and insignificant event on minor businesses. The interesting affair to discover was the improvement in the part of working majuscule in these small businesses compared to the microbusinesses in model 2. Moreover, a further explanation of the effect of economic growth was difficult due to the lack of enough principal data. Previous studies conducted through the experimental procedure too showed its bear upon on micro and pocket-size businesses (MSEs) as well as pocket-sized and medium businesses (SMEs) was negative and insignificant. This ways it is the aforementioned every bit the findings of this study presented in Table 1.

Table iii: Results of the Empirical Regression Model of Modest Businesses

The about important critical notation is that further test based on the results in Tables two, 3, and 4 showed a smaller level of try to produce less effective financial management as well every bit the tendency of the role of working capital to be less significant and vice versa. Moreover, working capital was found to exist negative and insignificant in micro-businesses, positively insignificant for modest ones, and positively significant for those categorized as medium. These results are empirically interesting by recommending efforts should be fabricated to empower business direction in micro and minor businesses of Indonesia.

The results in Table 4 shows model iv is the all-time empirical inquiry model. Information technology was discovered that the contribution of authorities expenditure, investment, and working majuscule was partially positive and significant. Meanwhile, the office of micro and small businesses towards medium ones was negative and meaning. The role of economic growth measured past the Gross domestic product in medium-sized businesses remained negative and insignificant. Furthermore, the R2 value of 0.995253 showed the function of regime expenditure, Gross domestic product growth, investment, working majuscule, micro business organisation, and small businesses contributed 99.53 percent, while the remaining 0.47 pct was influenced by other factors exterior model-4. Moreover, the DW values of model 2, model 3, and model 4 observed to be budgeted 2.0 showed the non-existence of car-correlation and this means the iii specification models are good and efficient and non misleading. Yet, based on the R2 and DW values of ane.865314, the fourth model was institute to be the best.

Table 4: Results of the Empirical Regression Model for Medium Businesses​​​​​​​

The negative effect of economic growth for micro-, small-scale- and medium-sized enterprises reinforces the results of previous research that authorities policies implemented to reduce unemployment, poverty, and income inequality in Indonesia have been a failure (Prasetyo, 2011, 2020). Moreover, the additional increase in authorities expenditure to assess the Covid-19 virus pandemic impact in the 2020 fiscal budget needs to be evaluated. Does the regime care more than about micro- and minor-sized businesses than others?

The information used for other variables in this research are very limited, partially available, and incomplete and this ways they cannot be scientifically used to study the current Covid-19 pandemic impacts. Therefore, further comprehensive studies are recommended to address the nigh important function of additional authorities expenditure on microbusinesses affected by the Covid-nineteen pandemic, which in real terms affects the community'south economic, social and cultural life.

v. Decision

The causes and effects of the multidimensional global crisis due to Covid-19, make the policy of every country in the world switch to a new economic status chosen "New Normal". Earth economical growth and Indonesia are expected to contract, then additional government spending is needed to recover presently. In this phenomenon, government spending must be properly optimized, not only for the recovery of economic growth. Yet, what is more important is to focus first on the construction of the socio-economical construction of people'southward lives. The argument is that the main causes and effects of this crisis are dissimilar from the previous crisis. The impact of the previous crisis was mainly due to financial problems, so that additional government spending was oft focused on economic growth. Notwithstanding, the crusade of the multidimensional crisis due to Covid-19 has more bear upon on the psychology of life, then we need a new policy status called "New Normal", namely, the policy to increase government spending should be farther optimized and focused on building the socio-economic construction of people's lives so that they can recover quickly

The results showed a greater level of business leads to meliorate financial management and working upper-case letter, consequently, becomes more than positive and meaning, while a smaller business organisation level causes less efficient fiscal management, low productivity, and negative, and insignificant working capital. Government expenditures and investments were discovered to be generally positive and meaning for MSMEs, but this statement was considered to be misleading due to the fact that regime expenditures only contributed positively and significantly to small- and medium-sized enterprises (SMEs), simply insignificantly to the growth of micro-businesses. Meanwhile, investment contributed to the MSMEs growth in full general. Moreover, the statement that economical growth factors contributed negatively and meaning to MSMEs was too found to be misleading because information technology was found to have a negative and insignificant contribution simply to small- and medium-sized enterprises, but significant to micro-businesses using a adept specific model.

This research scientifically has limited information from primary data and this made it impossible to have further comprehensive explanations for the relationships. Information technology is, therefore, recommended to conduct another inquiry with more than complete and comprehensive primary and secondary data. For instance, comprehensive studies are recommended to address the nearly important function of additional authorities expenditure on micro-businesses afflicted by the Covid-nineteen pandemic, which in real terms affects the Indonesian residents' economic, social, and cultural life. Furthermore, there is a need to pursue policy implications more seriously in the utilize of government expenditure every bit the most important function for "economic, social and cultural protection of the community".

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Source: https://www.koreascience.or.kr/article/JAKO202029062616523.page

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