Earmarking Tax: Can it Increase Public Trust in the Indonesian Government?

Authors

  • Faishal Fadli UKM-Graduate School of Business, UKM Bangi, Universiti Kebangsaan Malaysia, Malaysia. School of Economics, Huazhong University of Science and Technology, Wuhan, China.
  • Ghozali Maski School of Economics and Business, Brawijaya University, Malang, Indonesia.
  • Vietha Devia Sagita Sumantri School of Economics and Business, Brawijaya University, Malang, Indonesia.

Keywords:

Indonesia tax policy, earmarking tax, financial market, event study, difference in difference Model

Abstract

Earmarking tax supports a sustainable budget for a particular programme. In this way, the Earmarking Tax Policy has the potential to reduce inefficiency and corruption. The Earmarking Tax Policy in Indonesia is the government’s budget allocation for the education sector (20%) and health sector (5%). Based on that information, the financial market should react positively while the government is implementing an Earmarking Tax Policy. Using event study methodology, this research found a positive effect on the Cumulative Abnormal Return (CAR) of the top ten government corporation stocks. The difference in the method is used for robustness checks. The results show an increase in the value of CARs from the shares owned by the government companies when the Earmarking Tax Policy is applied. This is in accordance with the wishes of the government in implementing the Earmarking Tax Policy. This research could be presented to the Indonesian government in order for them to be able to implement earmarking tax policies in other sectors.

 

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Published

2020-04-27

How to Cite

Fadli, F., Maski, G., & Sagita Sumantri, V. D. (2020). Earmarking Tax: Can it Increase Public Trust in the Indonesian Government?. Institutions and Economies, 12(2), 1–40. Retrieved from https://ejournal.um.edu.my/index.php/ijie/article/view/17016

Issue

Volume 12, Issue 2 (2020)

Section

Articles

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