The impact of the Indonesian income tax reform: A CGE analysis

This study evaluates the impacts of Indonesia's recent income tax reforms on key macroeconomic variables, as well as the impacts on poverty and income distribution. It was found that the reductions in personal income tax and corporate income tax increase economic growth under a balanced budget assumption. The policy reforms also lead to a small reduction in the incidence of poverty. However, the policies also lead to an increase in income inequality because the tax cut is more beneficial to households in the highest income categories. It is recommended that future tax cuts should target the urban and rural poor.

► This study evaluates the impacts of Indonesia's recent income tax reforms. ► The reductions in personal income and corporate taxes increase economic growth. ► There is a small reduction in poverty; however income inequality increases. ► It is recommended that future tax cuts should target the urban and rural poor.