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 (2023) The effects of increased monitoring on high wealth individuals: Evidence from a quasi-natural experiment in Indonesia. Journal of Economic Behavior & Organization, 215, pp. 244-267. https://doi.org/10.1016/j.jebo.2023.09.017

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Abstract

In 2009, Indonesia introduced a specialised tax office focused on High Wealth Individuals (HWIs), increasing the audit probability and monitoring of around 1200 wealthy taxpayers in Jakarta. Leveraging a quasi-natural experiment and analysing 141,097 de-identified individual tax return records between 2006 and 2012, we developed a set of counterfactuals to evaluate the post- and pre-treatment tax declarations of the monitored taxpayers relative to their synthetic control groups. Our results indicate that although post-treatment declaration of taxable and earned income, as well as income tax, increased, the effect was short-lived. The increase in reported earned income was larger relative to taxable income, suggesting that monitored individuals exerted efforts to reduce tax payments. Furthermore, we identified a comparable positive spillover effect on income declaration for non-treated taxpayers in Jakarta who met the HWI criteria. We also demonstrated that the spillover effect drastically decreased as financial characteristics (such as income and wealth) diverged from those of the targeted population. Overall, the additional tax revenue generated from this program is small in comparison to the total tax revenue collected.

Item Type: Article in Academic Journal
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
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Date Deposited: 26 Sep 2023 08:03
Last Modified: 26 Sep 2023 08:03
DOI: 10.1016/j.jebo.2023.09.017
ISSN: 0167-2681
URI: https://irihs.ihs.ac.at/id/eprint/6713

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