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Tax Buoyancy in Indonesia: An Evaluation of Tax Structure and Policy Reforms

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  • Suhut Tumpal Sinaga

    (State Finance Polytechnic of Stan, Kota Tangerang Selatan 15222, Indonesia
    Department of Economics, Faculty of Economics and Business, University of Indonesia, Depok 16424, Indonesia)

  • Mahjus Ekananda

    (Department of Economics, Faculty of Economics and Business, University of Indonesia, Depok 16424, Indonesia)

  • Beta Yulianita Gitaharie

    (Department of Economics, Faculty of Economics and Business, University of Indonesia, Depok 16424, Indonesia)

  • Milla Setyowati

    (Faculty of Administrative Sciences, University of Indonesia, Depok 16424, Indonesia)

Abstract

This study investigates tax buoyancies in Indonesia. It analyzes the cointegration relationship between the regional gross domestic product (RGDP), along with several control variables, and tax revenues. Focusing on personal income tax (PIT), corporate income tax (CIT), and value-added tax (VAT), it employs a dynamic analysis from 2015 to 2021. This research utilizes the Wald test to evaluate long-term buoyancies and the PMG-ARDL model to assess tax dynamics and cointegration coefficients. The results revealed tax revenues’ consistent tendency toward equilibrium in the long term, with fluctuations across Indonesian provinces. PIT displayed the highest buoyancy and adjustment speed, followed by VAT and CIT. This analysis highlights tax types’ diverse responses to underlying factors, offering crucial insights into fiscal dynamics. The research illuminates the intricate relationship between economic indicators and tax categories, providing valuable lessons for future policies, especially concerning structural changes like tax amnesty programs and tax rate modifications.

Suggested Citation

  • Suhut Tumpal Sinaga & Mahjus Ekananda & Beta Yulianita Gitaharie & Milla Setyowati, 2023. "Tax Buoyancy in Indonesia: An Evaluation of Tax Structure and Policy Reforms," Economies, MDPI, vol. 11(12), pages 1-18, December.
    • Handle: RePEc:gam:jecomi:v:11:y:2023:i:12:p:294-:d:1294451
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    References listed on IDEAS

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    1. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1329-1368.
    2. Lagravinese, Raffaele & Liberati, Paolo & Sacchi, Agnese, 2020. "Tax buoyancy in OECD countries: New empirical evidence," Journal of Macroeconomics, Elsevier, vol. 63(C).
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