BEHAVIORAL REACTION TO THE 2008 INCOME TAX REFORM IN INDONESIA: A BUNCHING ANALYSIS

Chandra Tris Fajar Uji Putra, Ralp-Christopher Bayer

Abstract


Income tax reforms generally constitute some changes in marginal tax rates and its income thresholds which often lead to a higher tax liability. Taxpayers may respond to these changes differently, mainly by trying to lower their tax payments. Self-employed individuals have a greater incentive to strategically adjust to a lower income declaration. Using administrative tax data, this paper examines the reaction of self-employed taxpayers to the 2008 Indonesian Income Tax Reform using bunching analysis. Beside a clear evidence on bunching around the first kink point, our empirical findings suggest that Indonesia exhibits special cases. We find an inertia of pre-reform bunching around the first kink point in later years as well as an extraordinary bunching above the first kink point in the post-reform periods.

Keywords


bunching; self-employment; evasion

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DOI: http://dx.doi.org/10.31092/jia.v4i2.638

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