Doctoral Dissertation

Essays on Voluntary Tax Payment in Indonesia

DWI KRISNANTO(Summary of Dissertation)

Graduate School for International Development and Cooperation
Hiroshima University

September 2022

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Taxation is a fundamental method for the government to generate public revenues thatenable the financing of public goods and redistribution to reduce economic disparities. In contrast
to developed nations, tax administration in developing nations is extremely problematic. Due totheir limited human, technological, and financial resources, tax administrators in developing
nations are compelled to devise efficient strategies for implementing effective tax policies. To beable to create an effective strategy to increase the level of taxpayer compliance, it is necessary tofirst comprehend how taxpayers behave. The main objective of this study, thus, is to identify thecausal effect of governments’ strategies on individuals’ tax paying behavior (chapter 2), to explain
the causal effect of information about the quality of public governance on people’s tax attitudes(chapter 3) and the causal effect of individual preference toward redistribution (chapter 4).
Chapter 2 examines how deterrence and non-deterrence factors affect tax payment
behavior., which is crucial for tax authorities to determine appropriate taxation strategies. The
majority of the self-employed in developing countries are informal. One important argument is thatmany self-employed workers, even registered ones, involve tax non-compliance, and theirmotivation can be classified into deterrence and non-deterrence measures. We evaluate whichmeasure helps elicit tax payment of the self-employed by conducting a randomized controlled trial
on a unique sample of more than 6,000 self-employed taxpayers in Indonesia. To do this, allsampled taxpayers were randomly divided into four groups: one control and three treatment groups.
Taxpayers in the first treatment group received a communication letter indicating deterrence, andthose in the second and third treatment groups received a communication letter with reciprocity
and patriotism framing as non-deterrence, respectively. In contrast, those in the control group
received no communication letter. The results indicate that deterrence and non-deterrence
interventions encouraged self-employed taxpayers to pay taxes. Importantly, the effect of thedeterrence measure was short-lived and diminished in a short period, while that of the nondeterrence measures, irrespective of reciprocity and patriotism, lasted longer. Our study highlights

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authorities to enhance tax compliance on taxpayers’ behavior.
Chapter 3 investigates the effect of information about the quality of public governance on
people’s tax attitudes. Taxpayers tend to have an aversion to taxes because they often feel that theylack information about how their taxes are being spent. By conducting a vignette survey experimentwith the Indonesian taxpayers, we demonstrate that citizens are more likely to perceive their tax
obligations favorably if they are exposed to information that the government is acting in atrustworthy manner. This result suggests that a government’s commitment to establishing good
governance in tax revenue management can increase public confidence, which can be an important
determinant of people’s tax attitudes. Our study provides new empirical evidence on the impact of
psychological ties between citizens and the government on citizens’ willingness to pay taxes.
Chapter 4 examines the effect of wealth and source of wealth on individuals’ preference
toward income tax rate. An income tax is one of the important mechanisms for the government's
redistribution strategy, particularly in developing economies where it is generally difficult toimpose a wealth tax, a tax based on the market value of assets. Understanding individuals'
preference for income tax rate is critical to examine how an individual responds to redistributive
policies, which benefits the government in establishing an efficient and effective redistribution
scheme. We provide the ﬁrst investigation on the roles of wealth and its sources, such as inheritanceand entrepreneurial profits, in influencing individuals' preference for income tax rate in adeveloping country. By performing a vignette experiment with a unique dataset of Indonesian
taxpayers, we evaluate how information about different wealth sizes and sources affects
individuals' preferences for income tax rate. Our findings indicate that taxpayers generally perceivethat individual with high wealth should be subject to higher income tax rate, and more importantly,
income tax rate should be higher when wealth is inherited than when wealth is accumulated throughusual savings or entrepreneurial profits. This result implies that the distinction between income3without exerting efforts, such as inheritance, and income earned with pain or a utility cost, such as
employment and entrepreneurship is critical in shaping people's perception of income tax rate andnation's redistribution policy. In developing economies, data collection and research collaboration
with the government are extraordinarily challenging. As a result, we believe that our studies canprovide a tiny piece of necessary empirical evidence, not only as part of comparative studies oftaxation and redistribution across different regions to build a truly global body of knowledge in tax
studies, but also as a policy design to support revenue authority practice in developing economies.

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