THE EFFECT OF FISCAL POLICY ON ECONOMIC GROWTH CASE STUDY : IN INDONESIA Thesis by : Fanny Oktivia Denovis Thesis Advisor : Dr, H.Hefrizal Handra M.Soc.Sc ABSTRACT The objectives of the research are to analyze the effect of fiscal policy on economic growth in Indonesia. This research applies OLS (Ordinary Least Squares) method. Independent variables used in this research are recurrent expenditure, development expenditure and income tax in the period of 2002-2012. This research indicates that fiscal policy infuences the economic growth in Indonesia. The coefficient of determination (R2) shows that the variation of independent variables explains variation of dependent variable by 99.2 percents. Futhermore, government expenditure (recurrent or development) and income tax have significantly influenced to the growth in Indonesia. In other words, economic growth of Indonesia will be more progressive with the raise of government expenditures and income tax. Key words: economic growth, government expenditure, and income tax.