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The impact of the Indonesian income tax reform: A CGE analysis

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  • Amir, Hidayat
  • Asafu-Adjaye, John
  • Ducpham, Tien

Abstract

This study evaluates the impacts of Indonesia's recent income tax reforms on key macroeconomic variables, as well as the impacts on poverty and income distribution. It was found that the reductions in personal income tax and corporate income tax increase economic growth under a balanced budget assumption. The policy reforms also lead to a small reduction in the incidence of poverty. However, the policies also lead to an increase in income inequality because the tax cut is more beneficial to households in the highest income categories. It is recommended that future tax cuts should target the urban and rural poor.

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  • Amir, Hidayat & Asafu-Adjaye, John & Ducpham, Tien, 2013. "The impact of the Indonesian income tax reform: A CGE analysis," Economic Modelling, Elsevier, vol. 31(C), pages 492-501.
    • Handle: RePEc:eee:ecmode:v:31:y:2013:i:c:p:492-501
    DOI: 10.1016/j.econmod.2012.12.018
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    6. Herbert W. V. Hasudungan & Sulthon S. Sabaruddin, 2016. "The Impact of Fiscal Reform on Indonesian Macroeconomy: A CGE Framework," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 8(3), pages 181-202, September.
    7. Nugroho, Anda & Widyastutik, & Irawan, Tony & Amaliah, Syarifah, 2021. "Does the US–China trade war increase poverty in a developing country? A dynamic general equilibrium analysis for Indonesia," Economic Analysis and Policy, Elsevier, vol. 71(C), pages 279-290.
    8. Benjasak, Chonlakan & Bhattarai, Keshab, 2017. "General Equilibrium Impacts VAT and Corporate Tax in Thailand," MPRA Paper 88816, University Library of Munich, Germany, revised 01 Jul 2018.
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    17. Agus Sholikhan Yulianto & Anis Chariri, 2019. "The Role of Indonesian Tax Reform in Boosting Export Performance of Manufacturing Sectors," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(4), pages 343-352.
    18. Jacobsen, Lars-Bo & Nielsen, Max & Nielsen, Rasmus, 2016. "Gains of integrating sector-wise pollution regulation: The case of nitrogen in Danish crop production and aquaculture," Ecological Economics, Elsevier, vol. 129(C), pages 172-181.
    19. I Made Sudarma, 2017. "Does Voluntary Tax Compliance Increase After Granting Tax Amnesty?," GATR Journals afr138, Global Academy of Training and Research (GATR) Enterprise.
    20. Ibrahim, Umar Bambale & Abubakar, Isah Funtua, 2020. "Welfare Implication of Tax Rates Increase in a Recessionary Economy," MPRA Paper 111132, University Library of Munich, Germany, revised 13 Dec 2021.
    21. Amir, Hidayat & Nugroho, Anda, 2013. "Development of Web-Based CGE Model for Tax Policy Analysis," MPRA Paper 66300, University Library of Munich, Germany.
    22. Vanesa Jorda & Jose M. Alonso, 2020. "What works to mitigate and reduce relative (and absolute) inequality?: A systematic review," WIDER Working Paper Series wp-2020-152, World Institute for Development Economic Research (UNU-WIDER).

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