Author ORCID Identifier

https://orcid.org/0009-0000-2025-5869

Date Available

6-30-2024

Year of Publication

2024

Degree Name

Doctor of Philosophy (PhD)

Document Type

Doctoral Dissertation

College

Graduate School

Department/School/Program

Public Policy and Administration

First Advisor

Dr. Caroline Weber

Abstract

This dissertation comprises three essays that collectively explore the intricacies of subnational public finance in Indonesia: vehicle tax amnesty, property tax competition, and corruption. The research aims to understand the dynamics shaping fiscal policies at the subnational level.

In the first essay, I examine vehicle tax amnesty programs in Indonesia that have been very popular in dealing with high delinquency rates. From 2008 to 2020, provincial amnesties occurred every 2.5 years on average. Using the variation in the timing of the province’s amnesty adoptions, I estimate the effect of vehicle tax amnesty on vehicle tax revenue using difference-in-differences. The short-run increase in vehicle tax revenue due to vehicle tax amnesty ranges from 2.5% to 3.7% in my preferred specification. When considering the reduction in tax penalties, the impact diminishes by about half, and in some cases, the results do not exhibit statistical significance or show only marginal significance. Using an event-study design, I do not find the effect of vehicle tax amnesty on provincial revenue during the three years following adoption. The initial result confirms why amnesties have been highly popular. Moreover, the substantial reduction in estimated impacts when factoring in tax penalties suggests that vehicle tax amnesty might not be a suitable choice for revenue increase, in addition to the potential negative effects on future compliance. Without addressing the root causes of delinquency, the direct election system of governors may still encourage local leaders to adopt populist policies to win favor and votes. If that is the case, the widespread adoption of vehicle tax amnesty will likely remain a common practice.

The second essay examines strategic interactions in property tax rates among Indonesian districts during the property tax reform from 2009 to 2014, a period when the Indonesian central government transferred property tax authority to its districts. I leverage a unique aspect of the reform, i.e., the variations in the timing of each district setting its first tax rate, to instrument for neighbors' tax rates. Visual and empirical analyses suggest a general trend of decreasing property tax rates over time, from the initial tax rate announcements to just after all districts accepted the transfer of tax authority from the central government. However, my instrumental variable approach does not conclusively identify these interactions as strategic. The observed decrease in tax rates may instead be driven by broader influences, such as a common trend of declining rates, a wider scope of interaction beyond immediate neighbors, or social learning associated with the reform.

The third essay exploits variations in the timing of mayoral arrests to study the effects of corrupt mayors on government expenditures and the impact of these arrests on expenditures, utilizing panel data of local leader arrests and district-level expenditures from 2006 to 2020. My research draws on data from the Indonesian Corruption Eradication Commission (KPK), which has arrested numerous local leaders since its establishment in 2003. This approach provides a unique perspective on corruption, which is often difficult to detect due to its hidden and subtle nature, as it uses a direct measure of corruption through arrests. The data offers insight into how mayoral arrests affect capital expenditure: they lead to a significant and lasting decrease. Capital expenditure declines by up to 28% in a year and persists for five years after the arrests, with an average post-arrest reduction of 16%-22%. These findings highlight the importance of developing strategies to mitigate the long-term negative effects of mayoral arrests on expenditure.

Digital Object Identifier (DOI)

https://doi.org/10.13023/etd.2024.246

Funding Information

This study was supported by the Financial Education and Training Agency (FETA) scholarship of the Indonesia Ministry of Finance from 2020 to 2024.

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