The Impact of Taxation and Public Expenditure on Income Distribution in Indonesia

Transcription

1 The Impact of Taxation and Public Expenditure on Distribution in Indonesia Kunta Nugraha PhD Student Faculty of Business, Government and Law University of Canberra NATSEM Workshop for HDR Students Canberra, 13 September 2012

2 Outline Introduction Methodology and Data Used Findings Conclusions 2

3 Introduction Background Motivation Research questions Objectives 3

4 Selected taxation and public expenditure programs Programs Tariff income tax progressive, 5-30% income threshold taxes on production VAT, single rate, 10% others, multiple rate cash transfers targetted households benefits in-kind all households 4

5 Methodology: benefit incidence analysis ABS, 2007 My research, now * tax incidence Conventional method Conventional method allocate tax burdens to inversion formula to get different income groups gross income * Taxes on production Modified conventional method Modified conventional method incidence Scutella model margin industry approach * Public expenditure Benefit incidence Benefit incidence incidence estimate input cost as the net benefits measure for average benefits Use broad definition of income Use Ree equivalence scale 5

6 Definition of in this research Type of Definition Market 1 Market income net income + income tax 2 Net income wages and salaries, business and non-business income 3 All market income net income + financial income (withdrawal) Market and Non-Market 4 Actual income all market income + consumption of own production + income in-kind 5 after taxes actual income - taxes on production 6 Disposable income income after taxes + cash transfers 7 Final income disposable income + benefits in-kind 6

7 Main data used,

8 Non-market income has a big role in all income groups, especially the poorest (US$ in PPP 2008) 8

9 Both forms of taxation are regressive 9

10 Cash transfers and benefits in-kind are pro-poor, except subsidies (US$ in PPP 2008) Deciles Cash Transfers Benefits In-Kind Subsidies Health& Education Total Lowest Second Third Fourth Fifth Sixth Seventh Eighth Ninth Highest

11 Distribution of adjusted per capita income, % Market Market and Non-Market Deciles Gross Net All Market Actual After Taxes Disposible Final Lowest Second Third Fourth Fifth Sixth Seventh Eighth Ninth Highest

12 inequality measurement of adjusted per capita income Gross Market Net All Market Actual Market and Non-Market After Taxes Disposable Final Gini Coefficient Percentile Ratios P90/P P90/P P10/P P75/P

13 Disaggregation by province Big difference between GDRP per capita. Impact of non-market income, taxation and public expenditure. Non-market income has a significant role and tends to reduce income inequality between regions and provinces. tax reduces income inequality between regions and provinces, but taxes on production worsen income inequality. Cash transfers reduce income inequality. Health and education spending reduces income inequality. Subsidies worsen income inequality between regions and provinces. 13

14 Conclusions (1) tax has little impact on income distribution. Taxes on production tend to worsen the income inequality. Cash transfers tend to reduce income inequality. Benefits in-kind have two contra dictionary impacts, i.e. health and education spending improve income inequality, but subsidies worsen income inequality. 14

15 Conclusions (2) All income groups have significant non-market income Ignoring the non-market income component seriously distort the measurement of the degree of income inequality in Indonesia 15

16 Thank You Contact: 16