Tax Revenue and Income Inequality
A Provincial Level Evidence
DOI:
https://doi.org/10.36574/jpp.v6i2.326Keywords:
tax revenue, income inequality, income tax, value-added tax, local taxAbstract
This study examines the relationship between tax revenues and income inequality at the provincial level in Indonesia from 2011 to 2019. Applying a fixed-effect approach, this study finds that total tax revenue has no significant effect on income inequality. This result implies that Indonesia's current tax system and structure, both national and sub-national, have been unable to contribute to reducing provincial income inequality. Likewise, by the type of taxes, both income tax and value-added tax revenue have a relatively insignificant effect. However, the ratio of local taxes to gross regional domestic product (GRDP) has a considerable positive effect on income inequality, indicating that the majority of consumption taxes in the local tax component are regressive. Accordingly, at the sub-national level, expenditure programs may play role in reducing provincial inequality instead of the tax system.
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References
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Alavuotunki, K., Haapanen, M., & Pirttilä, J. (2019). The Effects of the Value-Added Tax on Revenue and Inequality. Journal of Development Studies, 55(4), 490–508.
Asteriou, D., Dimelis, S., & Moudatsou, A. (2014). Globalization and income inequality: A panel data econometric approach for the EU27 countries. Economic Modelling, 36, 592–599.
Barro, R. J. (2000). Inequality and growth in a panel of countries. Journal of Economic Growth, 5(1), 5–32.
Bastagli, F., Coady, D., & Gupta, S. (2012). Income Inequality and Fiscal Policy (2nd Edition). Staff Discussion Notes, 12((08)), 1.
Berg, A. G., & Ostry, J. D. (2017). Inequality and Unsustainable Growth: Two Sides of the Same Coin? IMF Economic Review, 65(4), 792–815.
Bird, R. M., & Zolt, E. M. (2005). The limited role of the personal income tax in developing countries. Journal of Asian Economics, 16(6), 928–946.
Biswas, S., Chakraborty, I., & Hai, R. (2017). Income Inequality, Tax Policy, and Economic Growth. Economic Journal, 127(601), 688–727.
Boulier, B. (1975). The effects of demographic variables on income distribution (6th ed.). Princeton, N.J.: Princeton University.
Carter, A., & Matthews, S. (2012). How tax can reduce inequality. Business and Economics OECD, 290/291, 53–54.
Cornia, G. A., Gómez-Sabaini, J. C., & Martorano, B. (2011). A new fiscal pact, tax policy changes and income inequality: Latin America during the last decade (WIDER Work). The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki.
Cornia, G. A., & Martorano, B. (2012). Development policies and income inequality in selected developing regions, 1980–2010. United Nations Conference on Trade and Development, 210, 1980–2010.
de Freitas, J. (2012). Inequality, the politics of redistribution, and the tax mix. Public Choice, 151(3–4), 611–630.
Duncan, D., & Sabirianova Peter, K. (2011). Tax Progressivity and Income Inequality. SSRN Electronic Journal.
Enami, A., Lustig, N., & Taqdiri, A. (2019). Fiscal policy, inequality, and poverty in Iran: assessing the impact and effectiveness of taxes and transfers. Middle East Development Journal, 11(1), 49–74.
Engel, E. M. R. A., Galetovic, A., & Raddatz, C. E. (1999). Taxes and income distribution in Chile: Some unpleasant redistributive arithmetic. Journal of Development Economics, 59(1), 155–192.
Galor, O., & Zeira, J. (1993). Income Distribution and Macroeconomics. Review of Economic Studies, 60(1), 35–52.
Gemmell, N., & Morrissey, O. (2005). Distribution and poverty impacts of tax structure reform in developing countries: How little we know. Development Policy Review, 23(2), 131–144.
Gujarati, D., & Porter, D. C. (2009). Basic Econometrics. McGraw-Hill.
Heady, C. (2004). Taxation Policy in Low-Income Countries. Fiscal Policy for Development.
Kesselman, J. R., & Cheung, R. (2004). Tax Incidence, Progressivity, and Inequality in Canada. Canadian Tax Journal, 52(3), 709–789.
Lambert, P. J. (1993). Inequality Reduction Through the Income Tax Author. Economica, 60(239), 357–365.
Li, W., & Sarte, P. D. (2004). Progressive taxation and long-run growth. American Economic Review, 94(5), 1705–1716.
Martínez-Vázquez, J., Vulovic, V., & Moreno-Dodson, B. (2012). The impact of tax and expenditure policies on income distribution: Evidence from a large panel of countries. Hacienda Publica Espanola, 200(1), 95–130.
Martorano, B. (2018). Taxation and Inequality in Developing Countries: Lessons From The Recent Experience of Latin America. Journal of International Development, 30, 256–273.
Nusiantari, D., & Swasito, A. P. (2019). Peran Penerimaan Pajak Dalam Usaha Pemerataan Pendapatan. Jurnal Pajak Indonesia, 3(1), 35–41.
OECD. (2019). Revenue Statistics in Asia and the Pacific 2019 ? Indonesia.
Pfähler, W. (1983). Measuring Redistributional Effects of Tax Progressivity by Lorenz Curves / Zur Messung der Umverteilungseffekte der Steuerprogression anhand von Lorenz-Kurven. Jahrbücher Für Nationalökonomie Und Statistik, 198(3), 237–250.
Schneider, F., & Enste, D. H. (2000). Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature, 38(1), 77–114.
Sharpe, A. (2003). Linkages Between Economic Growth and Inequality?: Introduction and Overview. Finance, 29.
Shorrocks, A. F., & Foster, J. E. (1987). Transfer Sensitive Inequality Measures. Review of Economic Studies, 54(3), 485–497.
Slack, E. (2017). How Much Local Fiscal Autonomy Do Cities Have? A Comparison of Eight Cities around the World. The Institute on Municipal Finance and Governance, 19.
Tanzi, V., & Zee, H. H. (2000). Tax policy for emerging markets: Developing countries. National Tax Journal, 53(2), 299–322.
The World Bank. (2016). Indonesia Economic Quarterly: Resilience through reforms (Issue June).
Todaro, M. P., & Smith, S. C. (2012). Economic Development (11th ed.). Pearson. Finland.
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Published
2022-08-31
How to Cite
Sari, D., & Qibthiyyah, R. M. (2022). Tax Revenue and Income Inequality: A Provincial Level Evidence. Jurnal Perencanaan Pembangunan: The Indonesian Journal of Development Planning, 6(2), 155–172. https://doi.org/10.36574/jpp.v6i2.326
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