The Impact of Tax Revenue on Economic Growth: Evidence from Indonesia

International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue V, May 2022 | ISSN 2454–6186

The Impact of Tax Revenue on Economic Growth: Evidence from Indonesia

Dwi Orbaningsih¹, Agus Eko Sujianto^2*
1Associate Professor, Faculty of Economics and Business, Gajayana University of Malang, Indonesia
²Professor, Faculty of Economics and Islamic Business, Sayyid Ali Rahmatullah State Islamic University, Tulungagung, Indonesia
*Corresponding author

Abstract: Theoretically and empirically explain that tax revenue has an impact on economic growth. This study is intended to conduct a review of tax revenue and economic growth in Indonesia. Research data was collected from the World Bank from 1972 to 2019. The results of this study indicate that tax revenues can significantly increase economic growth, and the correlation of tax revenues with economic growth is strong so that it is recommended for the government to continue fiscal policy with strict management to avoid the bad consequences of the policy.

Keywords: Tax revenue, economic growth, non-taxes revenues, grants, state income

I.INTRODUCTION

Based on the researcher’s in-depth observations on data published by the World Bank on Indonesia’s tax revenues in the last six years as illustrated in graph 1. Tax revenues tend to increase and reach a maximum point in 2019 of Rp 1,546.1 trillion. However, this figure decreased by 9.2% in 2020 to Rp 1,404.5 trillion as a result of the Covid-19 pandemic that hit the world, including Indonesia. However, this decline will not occur in the long term because in 2021 tax revenues will increase slightly by 2.8% or to Rp 1,444.5 trillion. This increase in tax revenue becomes a new force for the Indonesian government to finance increased state financing in the health sector, as explained Mukhlis & Simanjuntak (2011) that taxes are an instrument of the state to support state financing.

The dynamics of the tax revenue figure are also followed by economic growth, where in 2020 it decreased to -2.07% as shown in graph 2. decline. According to Rachdianti et al. (2016), taxes are one of the most important sources of state funding to support the realization of development and welfare. As a result of this decline in tax revenues in 2020, Indonesia’s economic growth declined and the government responded positively by implementing fiscal stimulus policies as carried out by ASEAN countries, Japan, China and South Korea.

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