American Economic Review Vol. 111 No. 12 2021

Tax Administration versus Tax Rates: Evidence from Corporate Taxation in Indonesia

M. Chatib Basri¹; Mayara Felix²; Rema Hanna³; Benjamin A. Olken²

¹ University of Indonesia (email: ) · ² MIT (email: ) · ³ Harvard Kennedy School (email: )

Abstract

We compare two approaches to increasing tax revenue: tax administration and tax rates. We show that when Indonesia moved top regional firms into “medium taxpayer offices,” with high staff-to-taxpayer ratios, tax revenue more than doubled. Examining nonlinear changes to corporate income tax rates, we estimate an elasticity of taxable income of 0.579. Combining these estimates, improved tax administration is equivalent to raising top rates on all firms by 8 percentage points. On net, improved tax administration can have significant returns for developing countries.

DOI

10.1257/aer.20201237

Volume

111

Issue

12

Pages

3827-3871

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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