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The Effectiveness of Investment Tax Incentives: Evidence from Renewable Energy Deployment in Indonesia

Author

Listed:
  • Mayang Sari
  • Suphi Sen
  • Hans-Peter Weikard

Abstract

We study the effect of a 2018 reform that expanded the scope of corporate income tax exemptions in Indonesia to include investments in renewable energy capacity. We find a large increase in the share of renewables in total installed capacity. These effects are mainly driven by the expansion of renewables and partially by a decrease in investments in fossil-fuel capacity. These regional effects imply a two-fold increase in the renewable energy share of Indonesia. We find no effects on manufacturing, a decline in mining activity accompanied by lower wages but no change in employment, and an increase in services employment, particularly in utilities. These results highlight the effectiveness of fiscal incentives in spurring capital-intensive infrastructure investments in developing countries and have implications for the role of renewable capacity expansion in regional development.

Suggested Citation

  • Mayang Sari & Suphi Sen & Hans-Peter Weikard, 2026. "The Effectiveness of Investment Tax Incentives: Evidence from Renewable Energy Deployment in Indonesia," CESifo Working Paper Series 12886, CESifo.
    • Handle: RePEc:ces:ceswps:_12886
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    Keywords

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    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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