Macroeconomic and Socioeconomic Impacts of Tax Amnesty Policy in Indonesia: an Economy-Wide Approach

This thesis assesses the economy-wide impacts of tax amnesty policy in Indonesia during 2016-2017 on selected economic and social indicators. This paper points out that the impacts of asset repatriation and extra tax revenue collected from tax amnesty can be only measured and analyzed comprehensively if those two amnesty outcomes are being treated as exogenous variables in a price-endogenous model such as FCGE (financial computable general equilibrium). Seven tax amnesty policy scenarios consist of factual and counterfactuals are simulated with the model to assess the effects of those two shocks on 9 economic indicators and 3 social indicators. The simulations reveal that, in general, tax amnesty generates a slight expansionary effect on the economy at the cost of worsening income inequality. The simulations also show that even though ‘targeted' and ‘non-targeted' tax amnesties lead the economy to grow, income inequality between the poor and the rich is widened. Financial income effects and forgiveness effect are held responsible for the worsening income inequality between the poor and the rich in Indonesia. Out of seven simulations, one shows that tax amnesty that is designed to specifically target the rich and corporations but with no salient information on where the repatriated assets have been allocated in the financial market—tend to have contractionary effect on the economy