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

  • M. Chatib Basri
  • Mayara Felix
  • Rema Hanna
  • Benjamin A. Olken
American Economic Review
vol. 111, no. 12, December 2021
(pp. 3827-71)
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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.

Citation

Basri, M. Chatib, Mayara Felix, Rema Hanna, and Benjamin A. Olken. 2021. "Tax Administration versus Tax Rates: Evidence from Corporate Taxation in Indonesia." American Economic Review, 111 (12): 3827-71. DOI: 10.1257/aer.20201237

Additional Materials

JEL Classification

  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • H26 Tax Evasion and Avoidance
  • K34 Tax Law
  • O17 Formal and Informal Sectors; Shadow Economy; Institutional Arrangements