The Effects of Increased Monitoring on High Wealth Individuals: Evidence from a Quasi-Natural Experiment in Indonesia

Chan, Ho Fai; Gangl, KatharinaORCID: https://orcid.org/0000-0001-6009-3358; Supriyadid, Mohammad Wangsit and Torgler, Benno (2021) The Effects of Increased Monitoring on High Wealth Individuals: Evidence from a Quasi-Natural Experiment in Indonesia. Social Science Research Network (SSRN), 41 p.

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Abstract

This study leverages a quasi-natural experiment – in 2009, Indonesia established a tax office for high wealth individuals (HWI), increasing the audit probability and monitoring of around 1,200 rich taxpayers in Jakarta. Using 141,097 de-identified 2006–2012 individual tax return records, we develop a set of counterfactuals to assess the post- and pre-treatment differences between the treated (monitored) taxpayers and their synthetic control groups. Our results indicate that although post-treatment declaration of taxable and earned income and income tax increased substantially, the effect is short-lived. The increase in earned income is relatively larger than taxable income, suggesting that monitored individuals exert effort to reduce tax payments. Furthermore, we identified a comparable positive spillover effect on income declaration for non-treated taxpayers residing in Jakarta who met the HWI criteria. Lastly, we demonstrate that the spillover effects drastically decrease as the dissimilarity of financial characteristics (income & wealth) to the targeted population increase.

Item Type: Discussion/ Working Paper (Unspecified)
Keywords: Tax compliance, Quasi-natural experiment, Institutional reform, High wealth individuals, Spillover effects
Classification Codes (e.g. JEL): H26, H24, C99
Research Units: Current Research Groups > Behavioral Economics
Related URLs:
Date Deposited: 01 Dec 2021 12:50
Last Modified: 02 Dec 2021 14:36
URI: https://irihs.ihs.ac.at/id/eprint/5988

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