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Volume 6, Issue 11, November – 2021 International Journal of Innovative Science and Research Technology

ISSN No:-2456-2165

Analysis Factors that Influence Public Sector


Invesment
Azhar Fathoni
Department of Magister Economics
Diponegoro University
Semarang, Indonesia
Abstract: -Investment in the public sector is an important
thing to consider, with adequate public sector services it Public Sector Investment
Negara
will help the community achieve better welfare. When 2010 2011 2012 2013 2014 2015 2016
people's welfare improves, it means that the economy in a Cambodia 2,93 2,81 2,96 3,42 3,1 3,27 3,38
country is in a stable condition so that it will attract Indonesia 3,91 3,19 4,61 4,66 4,59 4,88 5,21
foreign investment to enter the country. Cambodia, Laos, Laos 2,41 2,21 2,32 4,03 3,74 4,46 4,85
and Indonesia are countries that are in the ASEAN region Malaysia 6,67 7,56 7,64 7,38 7,31 7,08 7,03
but have small expenditures for the public sector even Philippines 4,41 4,14 3,67 3,63 3,73 4 3,96
though the population is large in contrast to countries such Singapore 4,51 4,47 4,61 4,71 5,11 5,27 5,43
as Singapore, Malaysia, and Thailand which have quite Thailand 6,31 7,81 7,34 6,82 6,42 7,71 7,4
large public sector expenditures. This study tries to Table 1: Public Sector Investment of ASEAN Countries in
analyze the factors that influence public sector investment 2010-2016 (in US dollars)
in seven ASEAN countries. The estimation technique in
this study uses the Panel Data model. This model uses 7 Source :WHO, UNESCO, World Bank (2018)
cross section data units and 7 time series data sets. The
In the study of Kappeler and Valila (2007) said that
Panel Data model is the most appropriate model to use
public sector investment received less academic attention.
because this study uses a time series of trade flows of each
Public sector investment itself is divided into several sectors
country which is then cross-sectioned with time series data
including education, health, and infrastructure. With the
of other countries' trade flows. The results showed that the
variable of tax revenue and public debt had a positive and availability of sufficient public goods, productivity of the
community will not be disrupted. One source of funding for
significant effect on public sector investment in the seven
government spending is tax revenue. Following are the tax
ASEAN countries, while the economic growthand
population did not affect public sector investment in the ratio data from 7 ASEAN countries:
seven ASEAN countries
Tax Ratio
Keywords:- public invesment, tax revenue, public debt, Negara 201 201 201 201 201 201
economic growth, and population. 2010
1 2 3 4 5 6
I. INTRODUCTION Cambodi 10,00 10,1 11,0
11,9 14,5 14,1 15,2
a 3 1 9
Investment is defined as the expenditure of investors or a 11,1 11,0
Indonesia 10,53 11,2 10,8 10,7 10,3
company to buy capital goods and production equipment to 5 9
increase the ability to produce goods and services available in 13,1
Laos 13,02 13,6 13,7 13,8 13,5 12,9
the economy (Sukirno, 2010). Public sector investment is 4
government expenditure for implementing projects that consist 14,7 15,6 14,2
Malaysia 13,33 15,3 14,8 13,7
of the development sector with the aim of investing. 9 1 9
Philippin 12,3 12,8 13,6 13,6
12,14 13,3 13,6
Public sector investments (health, education, es 8 8 2 7
infrastructure) made by ASEAN countries have differences in Singapor 13,2 13,8
12,96 13,4 13,8 13,6 14,2
investing, they are carried out in accordance with the needs of e 8 5
the priorities of their respective countries. Singapore and 16,3 15,4
Thailand 14,93 16,9 15,6 16,1 15,6
Malaysia which are considered as the most developed 6 4
countries in Southeast Asia have made large investments in the Table 2: Tax Ratios for ASEAN Countries in 2010-2016
public sector in 2016 amounting to 5.43% of GDP (Gross (in percent)
Domestic Product) for Singapore, and 7.03% of GDP for
Malaysia. Source : World Bank (2018)

From Table 2 it can be seen that each year the tax


revenue of each country can be said to increase, it can be said
that government spending should also increase, as well as
public sector investment where public sector investment is
government expenditure. The need for public goods will also
increase if the population continues to increase.

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Volume 6, Issue 11, November – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
This research was conducted in 20 countries in Europe in the
Mardiasmo (2002), in carrying out the public service period 1990-2009. The analytical method used is the LSDV /
function, the government is faced with the problem of making Least Square Dummy Variable. The results obtained indicate
public investment decisions. Public investment decisions are that infrastructure investment at the sub-national / regional
needed to support the implementation of programs, activities level increased after the receipt of decentralization.
and functions that are policy priorities. Expenditures for public
investment must receive greater attention than routine Krisztina Kis-Katos and Bambang SuharnokoSjahrir
expenditures, because investment / capital expenditure has a (2014) conducted a study entitled "The Impact of Fiscal and
long-term effect, but it will also burden the budget for the Political Decentralization on Local Public Investments in
following year. This study aims to analyze the effect of tax Indonesia". The purpose of the research carried out is to
revenue, economic growth, public debt, and population on investigate the impact of decentralization in Indonesia and the
public sector investment in seven Southeast Asian countries. democratization process in allocating budgets at the local
level. The data used is panel data from 271 regional districts in
II. LITERATUR REVIEW Indonesia in the period 1994 to 2009. Public investment is
categorized in the education, health and infrastructure sectors.
Dusan Paredes and Nathaly M. Rivera (2017) conducted The results showed that fiscal and administrative
a study compiled in a journal entitled "Mineral Taxes and The decentralization increased local government response to public
Local Public Goods Provision in Mining Communities". The infrastructure coverage.
data used are secondary data from 345 local governments in
Chile in the 2009-2014 time period. The purpose of this study Chuanglian Chen, Shujie Yao, Peiwei Hu, and Yuting
is to determine the effect of mineral taxes on the supply of Lin (2016) conducted a study entitled "Optimal Investment
public goods to the mining community. The methodology used Investment and Public Debt in an Economic Growth Model".
is a panel data regression in which the results of the study The aim of this research is to study the optimum level of
indicate that mineral tax increases will increase the availability investment made by the government and public debt in the
of public goods for the mining community. growth model. This study uses panel data from 1991-2014.
The results show that there is an optimum level of government
RacioCascajo, Lpurdes Diaz Olvera, Andres Monzon, investment or public debt during economic growth.
Didier Plat, and Jean-Baptise Ray (2016) conducted research
compiled in a journal entitled "Impact of the Economic Crisis Giovanni Melina, Shu-Chun S. Yang, and Luis-Felipe
on Household Transport Expenditure and Public Transport Zanna (2015) conducted a study entitled "Debt Sustainability,
Policy: Evidence from the Spanish Case ". The data used are Public Investment, and Natural Reources in Developing
Spanish transportation expenditure data from 2006 to 2014, Countries; The DIGNAR Model ". Policy makers in resources
the approach used is based on quantitative and qualitative from in developing countries often encounter complicated fiscal
a budget survey and interviews with public transport policy choices for regulating natural resource revenues, while
makers from 6 metropolitan areas. The results showed resource revenues may drive economic growth. The research
transportation was one of the most affected by the crisis that paper shows the Debt, Investment, Growth, Natural Resource
occurred mainly on household expenditure for transportation. (DIGNAR) model for analyzing macroeconomic and the
The organizers of public transportation participate in reducing impact of debt sustainability to expand public investment.
the offer for public transportation. DIGNAR can help make assumptions for explicit projections,
organize policy discussions based on different simulation
Andreas Keppeler and Timo Valila (2007) conducted a scenario.
study compiled in a journal entitled "Fiscal Federalism and
The Composition of Public Investment in Europe". The data III. RESEARCH VARIABLES AND OPERATIONAL
used are secondary data from European, EU countries15. The DEFINITION VARIABLES
aim of the research carried out is to analyze who determines
the composition of public sector investment in Europe,  Public Sector Investment
especially focusing on the role of fiscal decentralization. The Public sector investment is government expenditure in an
analysis used is the Generalized Method of Moments which effort to finance their needs in fulfilling public sector
uses 6 independent variables and 1 dependent variable. The services. In this study, public sector investment can be
dependent variable is Public Investment divided into 4 sectors, demonstrated by spending by the government in the
namely Education, Health, Infrastructure, and Redistribution. education, health and infrastructure sectors. The value of
Independent variables include Fiscal Decentralization, GDP, public sector investment is seen by comparison ratio to
Capital Transfer, Public Debt, Budget Surplus, and Population. GDP and expressed as a percent.
The results show that fiscal decentralization encourages public  Tax Revenue
sector investment, especially in infrastructure. The Tax Revenue variable is a major component of fiscal
decentralization. In carrying out its functions effectively
Andreas Kappeler, Albert Sole-Olle, Andreas Stephan, and get freedom in making expenditure decisions in the
and Timo Valila (2012) conducted a study entitled "Does public sector. The value of tax revenue is seen as a ratio
Fiscal Decentralization Foster Regional Investment in of the total tax revenue to GDP and expressed as a
Productive Infrastructure?". The purpose of this study is to percent.
analyze the effects of the acceptance of decentralization in  Economic Growth (PE)
infrastructure provisions at sub-national or regional levels.

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Volume 6, Issue 11, November – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
The variable of economic growth is economic statistics V. RESULTS AND DISCUSSION
as the best single measure of public welfare. The
underlying thing is because economic growth measures This research uses data processing tools with Eviews7.
the state of the economy that exists in a country. In this To find out the magnitude of the influence of an independent
study economic growth is calculated in percent and uses variable on the dependent variable, this study uses a Fix Effect
constant prices. Modelthat uses cross-section data in 7 Southeast Asian
 Public Debt (HP) Countries and within 7 Years. Multiple linear regression is
The variable public debt is debt that is owned by the used to determine the effect of changes from an independent
government, both internal and external. In this study variable (Tax Revenue, Economic Growth, Public Debt, and
public debt is shown by a ratio of ratio to GDP. Population) to the dependent variable (Public Sector
 Population (Pop) Investment).
Variable population is a person who legally lives or lives
in an area. In this study population growth is expressed in Variable Coefficient Std. Error t-Statistic Prob.
percent.
TAX 0.195584 0.043570 4.488975 0.0001
Data collected using secondary data are public sector PE 0.004165 0.030992 0.134379 0.8938
investment data used for public sector investment variables are HP 0.067156 0.008860 7.579756 0.0000
secondary data from WHO, UNESCO, and the World Bank POP 0.030790 0.020038 1.536593 0.1327
from 2010-2016. The data used for the tax revenue, variable is C -3.177533 1.484324 -2.140727 0.0388
a type of secondary data obtained from the World Bank in
2010-2016. The data used in the variety of economic growth Table 3: Results of Regression of Public Sector Investment
are a type of secondary data obtained from the World Bank in Models in 7 ASEAN Countries
2010-2016. The data used in the variable public debt are using
secondary data and was obtained from the CIA World Fact A. Effects of Tax Revenues on Public Sector Investment
Books in 2010-2016. The data used in the variable population The results showed that the Tax Revenue variable had a
are using secondary data. positive and significant influence on public sector investment
in 7 Southeast Asian countries. This empirically proves that
IV. ANALYSIS METHOD tax revenue has an influence on public sector investment with
a coefficient value of 0.1995, which means that if there is an
This research uses quantitative descriptive analysis increase in tax revenue by 1 percent, public sector investment
method. According to Sudjana (2001) quantitative descriptive in 7 Southeast Asian countries will increase by 0.1995 percent
analysis is used for the purpose of describing or explaining with the assumption of cateris paribus.
phenomena, events or events occurring at the present time in
the form of meaningful numbers. The estimation technique is When there is an increase in tax revenue, then the public
then continued using the Panel Data model. This model uses a sector investment in 7 countries in Asia Asia will increase, and
cross section data unit and time series data sets. The Data vice versa if the tax revenue has decreased, then the public
Panel Model used is the Fix Effect Model. Fixed Effect sector investment will decrease. These results are consistent
assumes that the intercept of each individual is different while with research by Paredes, and Rivera (2017) where an increase
the slope between individuals is fixed (the same). This in tax revenue will increase the supply of public public goods.
technique uses dummy variables to capture intercept Likewise with the research of Kis-Katos, and Sjahrir (2014)
differences between individuals. where tax revenues increase, public sector investment
increases. Based on the theory of public goods, when the
The analysis tool used is Eviews 7 software to estimate government wants to increase the amount of public goods
the significance of determinants of public sector investment provided, the amount of tax to be levied will be even greater
using the Data Panel. The relationship between the because one source of financing for public goods is the tax
independentvariable and the dependent variable in this study received by the government.
can be stated with the basic equation as follows:
𝐼𝑖𝑡 = 𝛼 + 𝛽1 𝑇𝑎𝑥𝑖𝑡 + 𝛽2 𝐻𝑃𝑖𝑡 + 𝛽3 𝑃𝐸𝑖𝑡 + 𝛽4 𝑃𝑜𝑝𝑖𝑡 + 𝑒𝑖𝑡 B. The Effect of Economic Growth on Public Sector
Investment
Information: The results showed that the economic growth variable with
α : Regression coefficient a coefficient of 0.004 had a positive but not significant effect
I : Public Sector Investment (% of GDP) (α = 5%). Therefore, the variable of economic growth has no
Tax : Tax Revenue (% of GDP) effect on public sector investment in Southeast Asian
HP : Public Debt (% of GDP) countries. This is due to the fact that most Southeast Asian
PE : Economic Growth (%) countries are still developing countries, where attention to the
Pop : Population Growth (%) needs of the public sector is still lacking. seen from existing
i :Shows the notation for cross section, in this data where the economic growth of Southeast Asian countries
study the cross section is country is fluctuating, there are even some countries that tend to
t : Shows the time series notation, in this decrease inversely with increased public sector investment.
study the time series are 7 ASEAN countries The results of this study are the same as those of Purnawati
e : Error term (2006) where it is precisely public investment that drives
economic growth.

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Volume 6, Issue 11, November – 2021 International Journal of Innovative Science and Research Technology
ISSN No:-2456-2165
C. Effect of Public Debt on Public Sector Investment [3.] Chen, Chuanglian, et al. 2016. Optimal Government
The results showed that the variable Public Debt has a Investment and Public Debt in an Economic Growth
positive and significant effect on public sector investment in 7 Model. China Economic Review vol. 45, pp. 257-278.
Southeast Asian countries. This empirically proves that the [4.] CIA, 2017. Public Debt, available at:
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increase in public debt by 1 percent, public sector investment government reponsiveness to local needs ?: Evidence
in 7 Southeast Asian countries will rise by 0.067 percent with from Bolivia. Journal of Public Economics vol.88, pp.
the assumption cateris paribus. When there is an increase in 867-893
public debt, the public sector investment in 7 Asian countries [6.] Kappeler, Andreas., Timo Valilla.2007. Fical federalism
in Asia will increase, and vice versa if the public debt and the composition of public investment in Europe.
decreases, then the public sector investment will decrease. Europian Journal of Political Economy vol.24, pp.562-
This result is in accordance with research conducted by Chen, 570
Yao, Peiwei Hu, and Lin (2016) found that when public debt [7.] Kappeler et al. 2012. Does Fiscal Decentralization Foster
increases, the amount of investment in the public sector will Regional Investment in Productive
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[8.] Kiskatos, Krisztina, Bambang Sjahrir. 2014. The Impact
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Investment Investments in Indonesia. Journal of Comparative
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coefficient value of 0.030 had a positive but not significant [9.] Mangkoesoebroto, G., 1999. Public Economy.
effect (α = 5%). Therefore, the variable of economic growth Yogyakarta: BPFE.
has no effect on public sector investment in Southeast Asian [10.] Mardiasmo.2002. Public sector accounting. Yogyakarta:
countries. Unlike the research conducted by Keppeler and Andi Yogyakarta.
Valila (2007) where the population has a significant impact on [11.] Mardiasmo.2001. Taxation. Yogyakarta: Andi
public sector investment, especially in the education and Yogyakarta.
health sectors. This can be caused by the lack of population [12.] Melina, Giovani, Yang, S.C.S. and Zanna, L.F., 2016.
participation in the availability of public goods and also in its Debt sustainability, public investment, and natural
administration, such as research conducted by Suebvises resources in developing countries: The DIGNAR model.
(2018) where in the research community participation can Economic Modeling vol 52, pp.630-649.
improve the performance of the public sector. [13.] Nurmayasari,Early. 2010. Analysis of Advertisements
Tax Revenue in Semarang City in 1990-2011.
VI. CONCLUSION [14.] Paredes, Dusan and Nathaly M. Rivera. 2017. Mineral
Based on the results of research conducted in seven Taxes and The Local Public Goods Provision in Mining
ASEAN countries, it was found that tax revenues, public debt Communities. Resources Policy vol.53, pp. 328-339.
have a positive effect, and are statistically significant for [15.] Sudjana.2001. Statistical Method. Bandung: Falah
public sector investment. This means that any tax revenues, Production.
and rising public debt will contribute to an increase in public [16.] Sukirno, Sadono.2010. Macro Economics: Introduction
sector investment. Sedangka economic growth, and population Theory. Jakarta: Rajawali Press.
have a positive but not statistically significant effect on public [17.] Turrini, A., 2004. Public investment and the EU fiscal
sector investment. framework. Economic Paper No. 202, European
Commission.
The limitation in this study is that the variables used have [18.] UNESCO, 2018. Education Expenditure, available at:
not been able to explain the whole phenomenon that occurs in https://en.unesco.org,
public sector investment. The advice that can be given is tax [19.] WHO, 2018. Health Expenditure, available at:
revenue to be one of the biggest financing in public sector http://www.who.int,
investment so that in its use it needs to be done more stringent [20.] World Bank, 2018. Tax Receipts, available at:
supervision in order to improve financing efficiency as in http://www.worldbank.org.
Mardiasmo (2002). Likewise with debt, where the use has
been calculated so that the results of debt financing can be
used to cover the debt.

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