Climate Change and Fiscal Response: Analysis of Regional Expenditure in Java Island

Muhammad Ikhsanul Amin

doi:10.37641/jimkes.v12i6.2910

Authors

Muhammad Ikhsanul Amin Master of Economic Planning and Development Policy, Faculty of Economics and Business, University of Indonesia; Jakarta, Indonesia

DOI:

https://doi.org/10.37641/jimkes.v12i6.2910

Keywords:

Climate Change, Panel Data, Public Spending, Regional Fiscal

Abstract

This study investigates the impact of climate change on regional fiscal policy in Java, Indonesia, focusing on how temperature and rainfall changes influence fiscal spending. Using secondary data from the ERA5 Satellite (2008–2020) and fiscal data from the Directorate General of Fiscal Balance (Direktorat Jenderal Perimbangan Keuangan/DJPK), this research examines 113 districts/cities on Java Island. Climate change indicators—average temperature and rainfall—serve as independent variables, while regional fiscal spending on climate-related initiatives is the dependent variable. Panel data analysis is conducted using three regression models: common effect (OLS), fixed effect, and random effect models, with the Chow and Hausmann tests to identify the most appropriate model. Results indicate a positive relationship between climate change (temperature and rainfall) and increased fiscal spending for climate adaptation and mitigation. The findings support the hypothesis that regions with higher temperatures and increased rainfall experience greater climate-related fiscal spending, highlighting the urgency for such measures in areas farther from the equator.

Downloads

Download data is not yet available.

References

Aaheim A, Amundsen H, Dokken T, Wei T (2012) Impacts and adaptation to climate change in European economies. Global Environmental Change 22(4):959–968

Acevedo Mejia, S., Mrkaic, M., Novta, N., Pugacheva, E. and Topalova, P. B. (2018). The effects of weather shocks on economic activity: what are the channels of impact? Working Paper No. 18/144. International Monetary Fund, Washington, DC.

Akram, N. (2012). Is climate change hindering economic growth of Asian economies? Asia-Pacific Development Journal, 19(2), 1–18.

Bachner., & Bednar-Friedl, B. (2019). The Effects of Climate Change Impacts on Public Budgets and Implications of Fiscal Counterbalancing Instruments. Environment Model Assess,24(4), 121-142.

Bappenas, 2023. Modul Perlindungan Sosial Adaptif, Jakarta: Bappenas.

BNPB, 2019. Indeks Resiko Bencana Indonesia. Jakarta: Badan Nasional Penanggulangan Bencana.

Chen, X., Yang, L., 2019. Temperature and industrial output: firm-level evidence from China. Environment Economic Management. 95, 257–274.

Gujarati, D. N., & Porter, D. C. (2009). Basic Econometrics (5th ed.). The McGraw-Hill/Irwin.

Hidayat, R., Ando, K., Masumoto, Y., & Luo, J. J. (2016). Interannual Variability of Rainfall over Indonesia: Im¬pacts of ENSO and IOD and Their Predictability. IOP Conference Series: Earth and Environmental Science, 31(1). https://doi.org/10.1088/1755-1315/31/1/012043

Hsiang SM, Neidell M, Graff Zivin J (2017) Temperature and human capital in the short and long run. Assoc Environment Resoure Economic 5(1):77–105

Hubler, M., Klepper, G., Peterson, S., 2008. Costs of climate change: the effects of rising temperatures on health and productivity in Germany. Ecol. Econ. 68 (1–2), 381–393.

Jiao, N. Xu, F. Yang, and K. Xu, “Evaluation of spatial-temporal variation performance of ERA5 precipitation data in China,” Sci. Rep., vol. 11, no. 1, pp. 1–13, 2021

Karlsson, M., Ziebarth, N.R., 2018. Population health effects and health-related costs of extreme temperatures: comprehensive evidence from Germany. Environment Economic. Manag. 91, 93–117.

Kementrian Keuangan, 2019. Pendanaan Publik untuk Pengendalian Perubahan Iklim Indonesia, Jakarta: Kementrian Keuangan.

Lehtonen, e., 2019. Climate Change Education: A New Approach for a World of Wicked Problems. Sustainability, Human Well-Being, and the Future of Education, Volume 11, pp. 339-374.

Leppanen, S., 2017. The Impact of Climate Change on Regional Government Expenditures: Evidence from Russia. Environment Resource Economic, Volume 67, p. 67–92.

Lee, D., Zhang, H., & Nguyen, C. (2018). The Economic Impact of Natural Disasters in Pacific Island Countries: Adaptation and Preparedness. In IMF Working Papers 18(108)

Lis, E. M., & Nickel, C. (2010). The impact of extreme weather events on budget balances. International Tax Public Finance, 17, 378–399.

Liu, W., & Tang, R., (2019). Impact of Economic Development Levels and Climate Disaster Types on the Short-Term Macroeconomic Consequences of Natural Hazard-Induced Disasters in China.

Marjuki, van der Schrier, G., Klein Tank, A. M. G., van den Besselaar, E. J. M., Nurhayati, & Swarinoto, Y. S. (2016). Observed Trends and Variability in Climate Indices Relevant for Crop Yields in Southeast Asia. Journal of Climate, 29(7), 2651–2669. https://doi.org/10.1175/JCLI-D-14-00574.1

Miao, Q., Hou, Y., & Abrigo, M. (2018). Measuring the Financial Shocks of Natural Disasters: A Panel Study of U.S. States. National Tax Journal, 71(1), 11–44.

Ouattara B., Strobl, E., Vermeiren, J., & Yearwood, S. (2018). Fiscal shortage risk and the potential role for tropical storm insurance: evidence from the Caribbean. Environment and Development Economics, 23, 702–720.

Ozdamar, G. &., 2022. The impact of climate change on budget balances and debt in the Middle East and North Africa (MENA) region. Climatic Change, Volume 172 : 34, pp. 1-27.

Perry, M., & Ciscar, J. (2014). Multi-sectoral perspective in modelling of climate impacts and adaptation. Dalam I. Galarraga & E. Sainz de Murieta (Eds.), Routledge Handbook of the Economics of Climate Change Adaptation. London: Routledge.

PK DPR, 2022. Pelaksanaan Penandaan Anggaran Perubahan Iklim pada Pemerintahan Pusat dan Daerah, Jakarta: Pusat Kajian Akuntabilitas Keuangan Negara.

Priyanto, W., 2021. PENGARUH PERUBAHAN IKLIM TERHADAP PRODUK DOMESTIK REGIONAL. AGRITECH, Volume 23 (2), pp. 91-98.

Sangkhaphan, S., & Shu, Y. (2019). The Effect of Rainfall on Economic Growth in Thailand: A Blessing for Poor Provinces. Economies, 8(1), 1–17.

Sitepu, D. H. J. F., 2023. Evaluasi Data Curah Hujan Satelit ERA-5 pada Berbagai Periode Data Hujan di Sub DAS Bodor. Jurnal Teknologi dan Rekayasa Sumber Daya Air (JTRESDA), Volume 3(2), p. 626–636.

Unterberger, C. (2017). How Flood Damages to Public Infrastructure Affect Municipal Budget Indicators. Economics of Disasters and Climate Change, 2(1), 5–20.

World Bank, 2021. Climate Risk Country Profile, Filipina: World Bank.

World Meteorological Organization , 2020. State of the Global Climate 2020, Geneva: WMO.

Yang, X. & Tang, W., 2022. Climate change and regional inequality: The effect of high teperatures on fiscal stress. Urban Climate, Volume 43, pp. 1-15.

Yu Qi, Hongxuan Zhang & Shuai Shao, 2024. Valuing high temperature’s fiscal costs: Evidence from China. Economic Analysis and Policy, Volume 81, p. 134–152.

Tirdasari, N. L., & Dhewanto, W. (2012). Family business succession in Indonesia: A study of hospitality industry. Procedia-Social and Behavioral Sciences, 57, 69-74.

Ward, K. (2012). Strategic management accounting. London and New York: Routledge.