Decentralization and Local Government Borrowing in Indonesia

In this paper, we examine the decentralization reforms now underway in Indonesia, focusing on their effects on local government borrowing. Our general conclusion is that the laws and their implementing regulations seem designed mainly to deal with macroeconomic considerations of the central government, and not to create a system to allow local governments to gain access to credit markets. Indeed, this seems likely to be a reasonable immediate goal, given that the pre-conditions for successful local government borrowing are not currently present in Indonesia. However, the long run goal must remain the creation of a viable framework in which local governments face hard budget constraints but are still able to have access to capital markets. It is here where the current framework in Indonesia is inadequate. To this end, we suggest a number of policies that will help in a transition period from the current reliance on direct administrative control of local borrowing to a greater reliance on market discipline policy. In the next section, we briefly discuss the current macroeconomic conditions of Indonesia, and outline the major features of Laws No. 22/1999 and 25/1999, including their provisions that deal with local government borrowing. In section III, we present a general "framework" that establishes some conditions under which different approaches to local government borrowing can be successful, and we apply this framework to local governments in Indonesia in the section IV. We conclude in section V

Culture Differences and Tax Morale in the United States and Europe

In recent years much research has investigated whether values, social norms, and attitudes differ across countries and whether these differences have measurable effects on economic behavior. One area in which such studies are particularly relevant is tax compliance, given both the noted differences across countries in their levels of tax compliance and the marked inability of standard economic models of taxpayer compliance to explain these differences. In the face of these difficulties, many researchers have suggested that the intrinsic motivation for individuals to pay taxes - what is sometimes termed their "tax morale" - differs across countries. However, isolating the reasons for these differences in tax morale is notoriously difficult. In a common approach, studies sometimes referred to as "cultural studies" have often relied upon controlled laboratory experiments conducted in different countries because such experiments can be set up with identical experimental protocols to allow cultural effects to be isolated. In this paper we first analyze a cross-section of individuals in Spain and the United States using the World Values Survey (WVS). In line with previous experiments, our findings indicate a significantly higher tax morale in the United States than in Spain, controlling in a multivariate analysis for additional variables. We then extend our multivariate analysis to include 14 European countries in the estimations. Our results again indicate that the United States has the highest tax morale across all countries, followed by Austria and Switzerland. We also find a strong negative correlation between the size of shadow economy and the degree of tax morale in those countries

Audit Certainty, Audit Productivity, and Taxpayer Compliance

Strategies for dealing with evasion include such standard policies as stricter enforcement (e.g., increased audit rates, more extensive audits, larger penalties). However, the exact responses of taxpayers to these enforcement measures are quite difficult to measure with existing field data, and so are not known precisely. In this paper we use experimental methods to examine how individuals respond in their compliance decisions to a "certain" probability of audit and to information concerning the "productivity" of an audit. Our design informs some individuals that their return will be audited with certainty prior to making their compliance decision, while other individuals receive information that they will not be audited; we also inform individuals of the productivity of the audit by stating how much unreported income will be discovered via the audit. We find that the announcement of audits increases the compliance rate of those who are told that they will be audited. However, the compliance rate of those who know that they will not be audited falls, and the net effect is that overall compliance falls. Working Paper 06-4

Can Developing Countries Impose an Individual Income Tax?

No Abstrac

The Price Effect of Georgia's Temporary Suspension of State Fuel Taxes

This report explores the effect of the fuel tax suspension on the price of gasoline in Georgia. FRC Report 14

Recent Changes in State and Local Funding for Education in Georgia

This report examines how the 2001 recession affected K-12 education spending in Georgia school systems. FRC Report 20

The Price Effect of Georgia's Temporary Suspension of State Fuel Taxes - Brief

This report explores the effect of the fuel tax suspension on the price of gasoline in Georgia. FRC Brief 14

Recent Changes in State and Local Funding for Education in Georgia - Brief

This report examines how the 2001 recession affected K-12 education spending in Georgia school systems. FRC Brief 20

The Clean Air Act Amendments and Firm Investment in Pollution Abatement Equipment

The command-and-control approach to environmental regulation requires that firms install prescribed technologies to meet specified goals. However, environmental regulations change frequently; in addition, the enforcement agency cannot perfectly monitor firm compliance. We examine the impact of uncertainties surrounding the enactment and the enforcement of the Clean Air Act Amendments of 1990 on firm investment in air pollution abatement equipment. We find that our measures of the likelihood of CAAA passage clearly affect a firm's investment in pollution equipment. Enforcement actions also affect a firm's investment, but these effects are weaker and are statistically significant only after enactment

Taxing the "Family" in the Individual Income Tax

In this paper we examine international practices in the ways in which the individual income tax is applied to families, focusing upon country practices in OECD countries. We find that countries differ significantly in their taxation of the family, but that the dominant practice is the choice of the individual rather than the family as the unit of taxation. We also calculate the income tax consequences for "representative" taxpayers across these countries, and find that the differences in taxes between singles and married couples can often be quite large. We conclude that choosing the individual as the tax unit is likely to represent the most equitable approach to income taxation, especially given the increasing complexity of family units in modern societies