The Welfare effect of Indonesian tax reform 2008/2009 in general equilibrium framework

SUHARTANTO, Budi Setyo, Ryuta Ray Kato

2010 | Tesis | S2 Ilmu ekonomi

This paper evaluates the impact of the Tax Reform on Indonesia economy using static computable general equilibrium model. It will focus on the effect of the changes on tax rates in the new Tax Income Law Number 36/2008 and Value Added Tax Law Number 42/2009 in the market equilibrium. There are five scenarios conducted to evaluate the impact of the new tax rates on the production sector, household sector, government sector, investment, foreign sector and social welfare as the ultimate goal based on Indonesia’ s Input Output table 2005. The Implementation of Law number 36/2008 by itself has no noticeable impact on social welfare. When the government implements Law Number 36/2008 and Law Number 42/2009 simultaneously, the society becomes worse off which is exhibited by decreasing compensating variation (CV) and equivalent variation (EV). The society will be better off in the counterfactual scenario in which government introduces non-taxed commodity while keeps the income tax rate at the initial level.

Kata Kunci : Tax reform,computable general equilibrium