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When regional policies fail: An evaluation of Indonesia’s Integrated Economic Development Zones

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  • Rothenberg, Alexander D.
  • Wang, Yao
  • Chari, Amalavoyal

Abstract

We study Indonesia’s Integrated Economic Development Zone (KAPET) program. Although firms in KAPET districts paid lower capital taxes, the program’s incentives neither stimulated entry nor increased output, and KAPET districts experienced similar development outcomes relative to non-treated districts. To investigate whether regional policies could be more optimally redesigned, we develop a quantitative spatial model where place-based capital tax cuts affect multiple sectors and impact a transfer system to finance local public goods. We find that capital incentives in KAPET areas would have been more welfare and growth enhancing if they had been accompanied by additional place-based improvements.

Suggested Citation

  • Rothenberg, Alexander D. & Wang, Yao & Chari, Amalavoyal, 2025. "When regional policies fail: An evaluation of Indonesia’s Integrated Economic Development Zones," Journal of Development Economics, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:deveco:v:176:y:2025:i:c:s0304387825000549
    DOI: 10.1016/j.jdeveco.2025.103503
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    More about this item

    Keywords

    Place-based policies; Local taxes; Informality;
    All these keywords.

    JEL classification:

    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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