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

41 Pages Posted: 10 Nov 2021

See all articles by Ho Fai Chan

Ho Fai Chan

Queensland University of Technology

Katharina Gangl

Institute for Advanced Studies, Vienna

Wangsit Supriyadid

Directorate General of Taxes

Benno Torgler

Queensland University of Technology; CREMA; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: November 8, 2021

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.

Keywords: Tax compliance, Quasi-natural experiment, Institutional reform, High wealth individuals, Spillover effects

JEL Classification: H26, H24, C99

Suggested Citation

Chan, Ho Fai and Gangl, Katharina and Supriyadid, Mohammad Wangsit and Torgler, Benno, The Effects of Increased Monitoring on High Wealth Individuals: Evidence from a Quasi-Natural Experiment in Indonesia (November 8, 2021). Available at SSRN: https://ssrn.com/abstract=3958549 or http://dx.doi.org/10.2139/ssrn.3958549

Ho Fai Chan (Contact Author)

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Katharina Gangl

Institute for Advanced Studies, Vienna

Josefstädter Straße 39
Vienna, A 1080
Austria

Mohammad Wangsit Supriyadid

Directorate General of Taxes

Jalan Gatot Subroto
Kavling 40-42
Jakarta, 12190
Indonesia

Benno Torgler

Queensland University of Technology ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

CREMA

Gellertstrasse 18
Basel
Zurich, CH 8006
Switzerland

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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