Economic Consequences of Tax Non-Compliance: Evidence From Indonesia

Heru Iswahyudi

MPRA Paper from University Library of Munich, Germany

Abstract: This article aims to assess the consequences of tax noncompliance on Indonesia’s economic growth in the perspective of the endogenous growth theory. The assessment is achieved by comparing the marginal productivity of public sector investment (which is mostly financed by tax revenues) with the marginal productivity of private sector investment (which could be financed by the proceeds available from nonconformity to tax laws). Empirical results in this study show that private sector investment has higher productivity than public sector investment. Further, it seems that the role of private investment in the process of economic growth is much larger and more important than public investment and these results are robust across several regression specifications. These do not necessarily mean that tax noncompliance should be left uncontrolled by the tax authority. However, since the extent of tax compliance (or noncompliance) may affect the availability of capital to be used for investment by the private sector, it is therefore suggested that expansionary fiscal policies financed through excessive tax enforcements may need to carefully consider the productivity constraints that might be faced by public sector investments.

Keywords: Tax Noncompliance; Capital Accumulation; Economic Growth; Productivity; Endogenous Growth Theory (search for similar items in EconPapers)
JEL-codes: H21 H26 H61 (search for similar items in EconPapers)
Date: 2018-12-18
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Jurnal Badan Pendidikan dan Pelatihan Keuangan 2.11(2018): pp. 49-60

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/122337/1/MPRA_paper_122337.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122337

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().